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How To Master Your Home Finances

Get started and turn your family finances into a long-term project with these step-by-step tips.

Woman mastering her home finances in the office

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It’s easy to treat family money like a utility: Bring in as much as you can, take out what you need, and just hope you don’t run out. But you wouldn’t run a business that way. Why would you do the same for your family?

It can seem daunting, but it’s really not that hard to turn your family finances into a successful long-term enterprise.

1. Define Your Financial Goals

Thinking about what you want to do with your money broken out in one, five and ten year increments is the first step to taking control. Whether you’re saving for your kids’ college funds or simply looking to upgrade your family’s vacation budget, write it down.

2. Examine Your Current Budget

Find two or three hours of uninterrupted time with your paychecks, your bills and a calculator to see where you are today. You need to determine what percentage of your take home pay goes into these three categories:

1) Fixed costs: mortgage, rent, insurance, utilities

2) Financial goals: savings, paying off debts

3) Flexible costs: food, travel and entertainment

There are plenty of free online or downloadable budget worksheets, like this one from Kiplinger, which can make this easy.

The “50-20-30” Rule 

For a well-balanced budget, Forbes and others recommend the “50-20-30” rule of thumb: Spend no more than 50% of your take-home pay on fixed costs, at least 20% on financial goals, and no more than 30% on flexible costs.

The lower you can get your fixed and flexible costs, the more you can put toward your financial goals.

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3. Trim the Fat

While some fixed costs— most notably mortgage or rent—are set in stone, others aren’t. If any costs strike you as conspicuously high, it’s time to shop around.

There may be better deals to be had on phone service, cable, Internet service, auto insurance and health insurance.

Take a hard look at eliminating some costs all together. According to The NPD Group, pay TV subscriptions could exceed $200 a month by 2020—perhaps it’s time to ask yourself whether you need cable TV at all.

Take an equally critical look at flexible costs—calculating the amount you spend on eating out or entertainment will probably increase your urge to cook more at home.

4. Spend Smartly and Pay Off Bad Debt First

Concentrate on paying off “bad debts” like credit cards or personal loans before “good debts” like student loans, mortgages, or business loans. And prioritize each group by interest rates of your debts. Tackle the debts with higher rates first.

Even if they’re bigger; in the long run, you’ll be saving by paying off less accumulated interest. If credit card debt is your particular demon, try the free tool called The Debt Eliminator from financial guru Suze Orman.

A student loan is a classic example of “good debt”; not only was it an investment in your future, the interest rates on the loan are often lower, and the interest is often tax-deductible.

Making your monthly student loan payments in full and on time can help boost your credit score. To see how quickly you can pay off your student loans, try this free calculator from Bankrate.

5. Pay Now for Tomorrow’s Education

A 529 savings plan is a great way to prepare for ballooning college tuition rates.

While the money you put into the 529 plan is subject to income tax, any earnings made through investment aren’t subject to federal tax (and, usually, not state tax) when you take them out to pay for tuition or other educational expenses.

There are two main types of 529 plans. Prepaid tuition plans pay for all or part of a year’s tuition ahead of time, locking in today’s rates no matter what the school costs 10 or 20 years from now.

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Savings plans, which you to set up through a state or through educational institutions, allow you to contribute to an individual investment account much like a 401(k).

The Financial Industry Regulatory Authority has a huge amount of resources and tools for scoping out 529 plans, including an expense analyzer.

6. Find an App to Help you Stay on Track

Once you define a new budget, there are plenty of apps and websites that can help you stick to spending limits that will make it work.

The free app Mint will notify you if you’re nearing your monthly spending limit in a certain category, for example, as well as remind you when bills are due and track the growth of your savings.

You Need a Budget helps users track spending and set short-term savings targets, such as putting a little away every month for a payment you know you’ll have to make in a few months.

Figuring out how to get your fixed and flexible costs under control goes hand in hand with tending and growing that at-least 20% you’re putting toward financial goals.

A little forethought in 2016 could get you started on the path to financial security for the rest of your life.

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