Cash Management Techniques in Household Family Budgeting

Many people get through the first few steps of budgeting (see four bulleted points below), but get stuck when it comes to the last one, monitoring actual income and expenses and comparing them to the budget.

The budget is useless unless you evaluate how you’re doing. There’s no way to tell unless you keep track of income and expenses and compare the actual to what was planned. This should be done on a monthly basis, but with an eye to the year-to-date accumulation as well. Early in the year, when year-to-date isn’t too useful, it may be helpful to evaluate the past twelve-month period. For cyclical budget categories, e.g. utilities or Christmas shopping, it may be best to compare with the same month of the previous year.

• Create a record of past income and expenses
• Project income and expenses into the future
• Balance your budget
• Monitor income and expenses and compare to budget

There are several cash management techniques that make budgeting and living within the family budget easier.

1. Track expenses and download from online accounts weekly.
2. Arrange checking, savings and credit card accounts so there are no monthly or annual charges or frills, and never incur other service fees or fines.
3. Whenever available, use auto-bill pay, electronic fund transfer (EFT), auto-deposit, whatever will remove the human element, but only when it’s free.
4. Use credit cards to assist cash flow during the month, not from month-to-month. Pay the entire balance by the end of the grace period.
5. In savings, keep at least 1–2 months total salary (more if you don’t have water-tight job security), or up to enough to cover the largest single bill you expect in a year (for me that's either annual property taxes or semi-annual tuition).
6. Keep at least 6–12 months total salary in other investments not restricted for retirement.
7. Finance nothing besides career-motivated education and the house you live in. Never pay anything else in installments; even at 0% interest it complicates bookkeeping.
8. Let relatives know when it looks like money might become tight, but don’t necessarily expect help. The idea is that if you actually do end up needing their help, it’s nice if they could anticipate by a few weeks so that it doesn’t interfere with their own cash flow planning.