Though having a big family has its own benefits, managing parents and your children can make your expenses go out of hands. However, by following some simple tips and rules, you can make sure that your finances are in control while making everyone happy.
Create a budget
The first step if you think you have crunched finances is to create a budget. This depends on your income, expenses, and your lifestyle; however, the steps to do so remain the same. So here we go…
- The mode of your budget– First decide how you are going to make your budget. You could create one with a paper and pen but the disadvantage here is that you have to calculate everything manually here. The other better method is doing it on a spreadsheet. Here, you could segregate your income and expenses and also make charts for all categories of your expenses. There are also sophisticated online software, and some free ones too for this. In these software, you can use various charts for keeping a track of your expenses and seeing where most of money is going. There are also some money apps that could be used for this but online software are better as they show you a visual depiction of your charts on the screen.
- Making an actual budget – Before starting to chalk a budget, you must finalise your financial goals. Without defining your specific goals like your child’s studies, how you can save for it. Consider segregating your financial goals into two categories – short and long-term as per your priority. For example, your main goal could be to change your car before spending on an exotic vacation. Then, you should list all your income sources and expenses and make various categories. Like for expenses, make categories like grocery, utilities, investments, loans, and luxuries. Now, assign a budget for all these categories. This way, you can avoid any impulsive buys and stay inside the boundaries that you have set.
- Being inside the budget – Though this isn’t easy, after you have created your budget, you must stick to it in all circumstances. Don’t redirect your income to other categories without a need. For instance, don’t skip any investment just because your entertainment expense went overboard for a month. This should be a complete no. Keep cross-checking your bank statement along with your budget to see if all you have noted down all your expenses and not missed anything. Also, minimise the cash transactions and use your debit card more often. This way, you can track what you have spent. It’s wise to have the ‘Savings First’ approach and not spend without thinking twice.
Use various tax breaks
Are you aware that you could claim your child’s school or tuition fee as a tax deduction? This is also true for any education loan. There is also an option for getting a tax break if you invest for your parents. For example, a tax deduction can be claimed for any health insurance that you buy for your parents under Section 80D of the IT Act. Besides the tax deduction, you can also save yourself from spending for any unforeseen medical expenses as you get a health cover for them. In case you stay in your ancestral or parent’s house, you can pay them the rent and then claim a House Rent Allowance or HRA. In addition, if you spend on any medical treatment of your parents, then you could claim a deduction under Section 80DDB especially for ailments like dementia.
Discuss your finances
It’s always a good idea to do a ‘money talk’ with all the family members at least once in a month. You must share that your financial situation is on the right path with your children and parents and also tell them is something is amiss. Lead by example and teach your children how important it is to save. This way, any unwanted expenses could be avoided.
Create an emergency fund
It could be scary to lose one’s job and income; especially when you have a big family with dependants or if there is just one working person or income. Hence, it’s essential to create an emergency fund, which can take care of 6-12 months of your basic expenses, in case you change your job or God forbid, lose it. Such kind of an emergency fund acts like a safety net or cushion to take care of your family. The amount to be maintained in this fund should be calculated depending on the needs of your family.
If you follow these tips, then your finances would largely remain on track. Always give priority to save and never neglect your investments. How about beginning with opening a Fixed Deposit for your children or all of your family members?