How to Avoid Common Missteps in Household Money Management

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By Josette Mandela

Many common missteps are made in household money management. These missteps fall under a few categories: financial literacy, communication, and basic money management skills. 

In this article, I would like to expand on these topics and give you a clearer picture of where you are on the financial continuum, from a novice to an expert, regarding your household money management skills. By the end of this article, you will have some new tools to help you avoid those missteps and feel more empowered to manage your household finances.

Many feel overwhelmed by money management. Maybe this sounds like you. You grew up in a family or at a time, when talking about money was vulgar, not discussed in polite company. Or maybe your parents felt overwhelmed by their jobs and life and didn’t see the importance of teaching you basic financial skills or having the time to teach you basic financial skills. Or maybe they didn’t feel comfortable managing money, so they didn’t feel like they could teach you about managing money.

Maybe your parents thought you would learn these skills in school. Sadly, the elimination of programs that teach these skills has become the norm. 

What are the advantages of avoiding these common missteps in household management?

Let’s start with financial literacy. Do you understand basic financial terms, such as income, expenses, debt, and investing? If the basic terminology is clear, then how are you with more advanced concepts like return on investment (ROI), compounding, amortization, and margin?

By not understanding common financial terminology, you could miss out on opportunities to grow your wealth. Most people will avoid doing something they do not understand. As the saying goes, the confused mind says ‘No’. 

If this common misstep is ringing true for you, consider finding a class, which could be online or in person, where you can learn more about these concepts. Maybe read a book on the topics of interest, if you don’t have time for a class. The advantage to taking a class is you have someone you can ask questions to and in the long run could be less time-consuming than trying to learn all of this on your own. Yet, if time is a challenge for you, reading a book and learning on your own is preferable to ignoring it and relying on others to manage your financial future.

What about basic financial skills? Do you know how to create and manage a budget? Or does the word evoke the terror of long columns of numbers and nothing ever balancing?

Maybe start smaller. What about keeping track of your income and expenses? Income would include any money you receive, such as salary from a job, bonuses, and interest on your checking or savings accounts. It can also be income from rental property, or investments such as stocks, bonds, and mutual funds.

Expenses would be things you spend money on, such as rent or mortgage, car payment, gas, and utilities. These are the big items that everyone remembers to account for. However, where many people get in trouble is not accounting for those small expenses that seem insignificant. These would be things like spending five dollars at Starbucks for a cup of coffee or ten dollars for lunch with the team. Though these are small amounts, over time they add up and can make or break your financial plan.

Speaking of your financial plan. Do you have a plan? Successful money managers have short-term and long-term plans. Short-term plans, which encompass approximately three months, will include detailed information about the expected income and expenses, along with any funds designated for saving and investing. Long-term plans can be anywhere from one to five years, depending on the financial goals. The expected income and expenses in the long-term plan are more fluid the farther into the future you go. However, having a framework for longer-term goals, such as a down payment for a new car or house, makes these longer-term goals more likely to be achieved in the time frame. And while building that financial plan, including an emergency fund. By creating and maintaining an emergency fund, you ensure that you have money handy when something unexpected happens, such as the car breaking down or an out-of-town family member is deathly ill and you need to book a flight immediately.

Open communication

For those who are married, the last piece of the puzzle is communication. You and your partner/spouse must have open and honest communications regarding money matters. In the United States, fifty percent of marriages end in divorce and the number one reason for divorce is money issues. Money discussions can be a thorny topic for many, however, you and your partner/spouse need to find common ground. One recommendation is to have a joint checking account for items that both of you contribute to and separate accounts for your own financial plans.

How this could work would be that the joint account covers the rent/mortgage, utilities, jointly owned rental property, common vacations, or other investments. To ensure timely payment of the joint bills, both of you need to agree on the amount to contribute to the joint account. One option is to create individual accounts for each of you to cover your respective expenses, such as retirement plans, car payments (in case you decide not to purchase them together), clothing, and other personal expenses. 

Having this conversation as early as possible in the relationship could prevent a lot of heartache later. This conversation is especially necessary where one partner makes substantially more money than the other partner. Both partners need to have mutual respect for each person’s contributions and agree on how to pay for joint assets.

Conclusion

By working on these common missteps, you will no longer feel overwhelmed by your money situation. You will have gained clarity on what you were missing, whether that was financial terminology, working towards a financial plan, building an emergency fund, or clear communication with your partner. You learned useful skills to improve your financial literacy, simple ways to build a financial plan, and the power of clear communication with your partner. Ultimately, you feel empowered to handle household money management. 

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Josette Mandela is an MBA-trained author and financial wellness coach focused on teaching women basic financial skills.  Before becoming an author and coach, she consulted for several financial institutions. Though the money was good, there was little job security. She saw women struggling to make ends meet and unsure how to get ahead financially. Josette decided to leave the corporate world and help other women become empowered money managers.

Connect with Josette at www.josettemandelathemoneygirl.com or on facebook

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