With the start of a New Year comes the perfect time to reassess the family finances. Taking stock of the good – and bad – can help ensure that your family ends up in a better place financially at the end of the coming year. Some basic steps will get you started on the right path:
Calculate net worth.
Net worth isn’t the same as a salary. Net worth is how much money your family has; it is the value of all savings accounts and assets (like the house) added up along with all the debt (including mortgage) subtracted. This number offers a good measure of financial health. A positive number – the larger, the better – is obviously much better than a negative number.
Set realistic financial goals.
With the family’s net worth calculated, goal-setting becomes a bit easier. A negative net worth means its time to focus on paying off debt and building a financial cushion. A positive net worth means more resources can be dedicated towards ensuring a financially fit retirement and saving for the children’s college – or even a splurge on a fabulous family vacation. Building a budget is a good first step towards tracking what the family currently spends and then calculating where to cut expenses.
Get organized.
It is hard to accomplish any financial goals if the office is a disaster, the bills get lost and money seems to disappear. Financial planning software can help put some organization into paying the bills just as a file cabinet (or good scanner) can help manage the mountains of paperwork that seem to come with managing the family’s money.
Remember insurance.
Insurance is the bedrock of any ensuring solid family finances as it will protect assets in the event of an unforeseen disaster. Make sure the family has a umbrella policy, health insurance, car insurance, life insurance and homeowner’s insurance – and evaluate your family financial needs to see if other type of insurance fit your needs (for example, insurance that targets expensive jewelry).
Stay involved.
If your husband normally handles the famly finances, vow to get a basic understanding of the family’s financial health (such as your family’s net worth, retirement goals, etc.). If your wife does the grocery shopping, offer to take a trip or two so you understand how the grocery bill adds up so quickly. Understanding how your partner handles money is an important step to working together to build healthy family finances.
Educate yourself.
Financial planning can be a scary task, but there is plenty of information available that outline the basic steps to take. Take the time to read some books, study the newspapers and read a couple money magazines to learn the basics. It also helps to ask questions of people who are financially successful or knowledgeable, such as a financial advisor or accountant.