The Secret to Managing Family Finances

Thursday, March 20, 2014

The Balance of Consume vs. Spend

It’s tough trying to manage family finances. The expenses mount up, what with things like mortgages, daycare, education - and then there’s the seemingly endless utility bills. 

It isn’t always easy, but there are some simple ways to cut your spending to help ensure that you’re putting enough aside for the important things in life - for what matters most to you and your family.

A good rule I’ve found that really helps get your head around this stuff is to take note of the relationship between what you’re consuming and what you’re spending.

Think about it like this: the more you (and your kids!) consume, the more you’ll spend. It sounds really obvious, but if you first assess how necessary and essential your 'consuming' is, you suddenly see the knock-on effect it has on your excess spending.

This means you need to explore and understand the habits (eating takeaway, renting movies, buying video games) and motivators of consumption (busy lifestyle, desire to appease quickly or fix a problem with a purchase) that result in you spending more money than you really need to.

Then, if you want to spend less, you have to be prepared to make choices that change your consumption habits. If you can do this successfully, you’ll be surprised at how much money you and your family start to save.


With that approach in mind, here are some starter tips that I find useful in getting the most out of my family’s budget. 


1. Set some clear savings goals upfront. 

This could be as simple as saving an extra $100 a month to pay for the kids’ swimming lessons, or something longer-term like saving up for a family holiday to Bali. Once you have a clear goal in mind you can start planning how you’re going to achieve that goal. Start looking at your consumption with the mind to save ‘x’ amount over ‘y’ number of days, as a trial.


2. Work out where your money is currently going. 

Most banks offer some kind of budget/expense tracker tool that can help you categorise and monitor the spending on your credit cards or through your bank accounts. It’s well worth the effort to get yourself set up with one of these tools - you'll no doubt be surprised where your money is going. The family fish & chips by the beach on a summer weekend is great as a treat, but if it starts to happen every weekend, the cost starts adding up.  

Remember: skimping on these things isn’t denying your family a treat, it’s merely shifting from one, perhaps more fleeting treat (food) to something more substantial (a holiday, or that Xbox the kids won’t shut up about.)


3. Make sure you’re getting a good deal on your ‘big spend’ items. 

If you’re like most families, your big expenses will be things like mortgage or rent payments, groceries, utilities (including mobile, internet, phone) and insurance payments. Because these make up such a major chunk of where your money goes, it’s important to make sure you are always getting the best possible deal on each of them. I personally look around on a regular basis (once every 1 to 2 years) to make sure I’m getting a decent deal. Banks, for example, all offer a range of mortgage product options and rate plans to suit your needs. Even small reductions in your mortgage rate can make a big difference to your household budget.  When you’re looking around, just remember to read the fine print, as sometimes the lowest price won't deliver you the product, service or coverage that you’re after.


4. Work out ways to make sure you don't inadvertently spend more than you were planning to.

Setting a spending limit and sticking to it can be hard, but there are ways to make sure you only spend what you intend to. One of the things I do is withdraw a set amount of cash at the start of every week and then limit myself to only spending that amount on coffees, lunches, etc. Another example is to that you use the click and collect services on offer. This is great for grocery shopping as it makes sure you aren't tempted by the specials on offer in store, AND, you’re not paying shipping costs, because you’re picking up the items yourself.


5. Buy in bulk - when it makes sense. 

Everyone has to consume. It’s the culture we live in, and basic consumption keeps us alive. But you can also be smart about the things you have to buy.

It’s no particular secret that buying large quantities often comes with a good savings attached. While this isn't always convenient, it makes sense to shop around to find ways of getting things in bulk, and therefore saving money. Costco, for example, offers its members access to wholesale prices with its warehouse membership club initiative. Just think what you’ll be able to save on those nappies!


6. Buy (and sell) online.

Searching the web for good deals is well worth the effort - remember that online retailers don't have to pay the high rentals of popular shopping centres. And I don't mean just the big stuff (furniture, electrical, etc), but also day to day items, too. For example, my wife recently saved $10 on her favourite shampoo by switching to buy it exclusively online.

Your smart online experience doesn’t have to stop at buying, either. Why not make use of e-auction sites like eBay to sell your stuff as well? This isn't going to make you an overnight millionaire, but is a great way to bring in a small amount of extra cash, and a convenient way to get rid of all of those old toys and unwanted kid-paraphernalia.

To be good with selling online, try holding on to your excess ‘consumption’ items in cycles: buy an amount, and then resell what you can when it’s no longer needed. That money then helps fund the next set of purchases of whatever you have which also has a high resell value (kids clothes, toys that have come and gone with passing fads, electrical items that you’ve ‘upgraded’ like phones, mp3 players, etc.) Ensure that your ‘consumption churn’ isn’t always at a total financial loss.