Five things to know about household finances

Home is much more than just the four walls that hold a roof over your head. Home is your base of operations; a place to retreat, think and make plans for the future. As the foundation of your financial life, it is important that your household’s financial house be in order.

Whether you’re developing a plan for the first time, or dealing with an unexpected change in financial circumstances, it’s essential that you and your family understand your situation and establish short and long-term goals. Understanding household finances gives each family member increased confidence and steadies nerves in the event of a financial crisis.

Here are five factors to consider when reviewing household finances:

1. Prepare for Emergencies
Establishing an emergency fund should be your top priority. Having money for “unplanned” expenses can make the difference between a minor financial setback and a major financial disaster. Most experts recommend that you save about three to six months’ worth of living expenses.

2. Evaluate Needs and Wants
Creating a list that clearly defines needs and wants can help you establish your financial priorities. Some household expenses occur infrequently, while others come in regular intervals. Carry a pocket-sized notebook with you and write down every purchase. After two weeks, review your notes and decide if you really need all the things you buy.

3. Understand and Control Credit
Credit is often considered negative; however, most of us need to use credit at some point in our lives. Not all credit is created equal, and it’s important that you use credit wisely – especially credit cards – to avoid unwise debt. Understanding credit card agreement terms will help you evaluate your options so you can choose what’s best for you.

4. Account for the Costs of Owning a Home
When you first bought a home, you probably discovered hidden costs you never thought about when you were renting. Owning a home means that you are responsible for all maintenance and repairs. Every year, you should expect to spend some money on routine maintenance, so make sure your emergency savings fund can account for unexpected repairs.

5. Get the Family Involved
All members should understand the family’s financial situation, and a family meeting is a good place to start. Before the meeting, do some analysis to determine the current situation. If an event has occurred that will require major changes in spending, having some information about what should change would be a helpful starting point for discussion.

Finally, don’t forget to revisit your overall spending plan several times throughout the year to make sure you are on track. Common sense and flexibility are important keys to financial success.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.