How a family budget can help to build wealth

Pooling resources can be useful in a challenging economy. Family units are a natural starting point, with every income earner in the home contributing to a family budget.

We explain how to budget as a family, and avoid some of the pitfalls of joint financial planning.

Tip: Families can build their wealth by investing in their future. Find out more about saving and investing.

How does a family budget work?

A family budget enables you to spend and save money for the benefit of the entire family. This presents a unique opportunity to build generational wealth, as long as vital components, such as debt and savings, are tackled strategically, says Sherry Tapfuma, a paraplanner at Crue Invest.

When carefully prepared, a family budget can also enable short-term goals, such as an annual holiday, or saving for education, to become a reality. And, as Tapfuma notes, “it allows family members to understand why certain items can’t be purchased just yet”. 

However, joint planning also presents some challenges. These can include differing attitudes toward money, and opposing views on its management. “This can lead to turmoil and resentment,” Tapfuma says.

To maximise your chances of success, a good starting point is understanding the family’s dreams and objectives, says Claire Klassen, a consumer financial education specialist at Momentum Metropolitan.

Work out family dynamics

Tapfuma says a family budget shouldn’t lose sight of each family member’s needs. For example, each income earner should be able to save individually, while contributing to a pool that may provide, for instance, for the care of elderly or unemployed family members. 

Families need to discuss who may be exempt from a family budget. Older siblings may contribute while younger ones find their feet, or caregivers may not contribute if they stay home and look after children.

“If the biggest contributor has the most say over the budget, financial progress for other family members may be delayed, so make sure the process is fair,” says Tapfuma.

It may pay to work with a financial coach or adviser, who can help a family work through implicit biases, tension around hierarchies, and other issues.  

How to set up a family budget

At the outset, roles and responsibilities should be clearly defined. 

“Determine upfront who will manage the budget, pay bills, track expenses, buy groceries, and keep records,” Tapfuma advises.

Family members should discuss wants versus needs; spending priorities, such as bond or rental payments; insurance and electricity; and saving strategies.

After the first month of sticking to a budget, review it against reconciled bank statements and discuss any adjustments that may be needed, including any new expenses, says Klassen.

If there is a positive balance at the end of the month, allocate funds to savings - especially an emergency fund - servicing debt, or paying towards retirement.

Tips for successful budgeting

According to Klassen, families should check in regularly to ensure they’re on track to meet their goals.

It’s also essential to adjust the budget when family members enter new life stages, such as when a child moves from primary to high school.

Klassen recommends using a software package such as Excel so you can project income and expenses for the months ahead, enabling the family to predict what they’ll spend in the future.

“That way, if there’s more than one birthday falling within a month, expenses for gifts and parties are taken into account,” she says.

Tip: Debt can compromise your family’s financial plans. Find out how debt consolidation can improve your cash flow.