Have you argued about money with your significant other? Financial matters cause fights for 35 percent of couples, which makes it the single biggest point of contention in a relationship. It’s easy to have emotionally charged conversations about finances, but you can reduce the risk of this happening by treating the household budget as a business. When you take this approach, you gain an objective perspective to discover the best ways to handle income, expenses and related situations.
Your first step is to understand the economic landscape for your household. Account for all your incoming funds and outgoing expenses. Even the smallest spending should be tracked. If you don’t conduct an audit at the beginning of this process, you don’t have full visibility into monetary matters.
Profit and Loss Statement
Now you can put together a profit and loss statement. Seeing this information in hard numbers helps you gain clarity on your financial situation. Categorize all income streams into the profit section and all expenses under loss.
Software may make it easier for you to track this information. Some accounting programs integrate with your bank and credit card companies, so you have financial reporting that’s pulled directly from your accounts.
Cash Flow Forecast
Your cash flow forecast allows you to predict how much money you should have at a given time. You put this together with the help of the profit and loss statement, along with your financial audit.
Since you already know how much money you spend on regularly recurring expenses, such as rent and car payments, you have a baseline understanding of your cash flow. You also need to consider the cost of things such as lunches, coffee and other small purchases.
The cash flow forecast gives you advance warning of regularly recurring and planned one-off expenses. Even if you don’t know exactly how much a bill is going to be, you can estimate based on your previous forecasts.
Now it’s time to consider your household’s short-term and long-term financial goals. Are you trying to pay off credit card debt, save up for a home down payment or make renovations?
Write down all of these goals and the time frame that you’d like to reach them in. Work backward from there to see the steps necessary to accomplish this outcome. These small, manageable steps put you in a position to succeed and cause less stress than trying to rush to meet a savings deadline.
Sit down as a family and discuss your economic situation. The exact amount of information you divulge should be age appropriate for any children so the details don’t fly over their head. You get an excellent opportunity to teach your kids financial literacy, which will serve them well in the future.
When you hold these household meetings, make sure to go over what is and isn’t working from your budgeting strategy. You probably won’t get things perfect on the first attempt, so it’s always important to evaluate how things are going and adjust from there.
Few things bring up emotions like your finances, but you can sidestep this issue and avoid fights with a business-like approach. Companies use these techniques to fully understand their positions, and there’s no reason you can’t do the same.