While some people have no choice but to seek bankruptcy protection after they have experienced an extended period of unemployment or a catastrophic illness, others find that they have slowly allowed their debt burden to become unmanageable. In either case, bankruptcy can take significant emotional toll on a family, as well as a financial one. When families work together to managing their finances, they can significantly reduce their risk of bankruptcy and survive times of financial hardship.
Families Need To Set Financial Goals
Often families find themselves in financial difficulty because they have different goals. For example, a husband might want the family to take a vacation to the mountains, while the wife might want to take the children shopping for new clothes for school. If the couple does not take the time to review their budget to see if they can afford to accomplish both short-term goals, they might spend more on their credit card than what they can pay off before the end of the credit cycle or the following month.
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When families sit down to discuss their long and short-term financial goals, they can set priorities and develop a plan to meet these goals within their budgets. Goals can be prioritized according to needs, wants, and desires. By including children and teens in these conversations, they can start to learn the basics of financial literacy. Additionally, they will learn that having enough money for food, clothing, and shelter takes precedence over getting the latest video game or a shopping spree at the mall.
Having Monthly Planning Meetings
Often families find themselves in financial trouble when they do not take the time to establish a family budget or do not review it on a regular basis. Others find that they have not taken into account changes in income or fixed expenses, which means that they might find they are out of money before their next paycheck. This is the circumstance that leads people to start charging utility bills and their groceries on their credit cards, which is one of the early signs of financial trouble that begins the road to bankruptcy.
When planning your budget with your family, do your best to keep within the following limits:
* Housing should not be more than 30 percent of the household’s monthly income
* Transportation costs, including fuel, car payments, taxes, and insurance should not exceed 18 percent of monthly income
* The food budget should not exceed 15 percent of the family’s income
* Utility bills should not exceed 5 percent of income
Additionally, the family budget should account for 10 percent of the monthly income to be put aside for savings. Families need to have at least three to six months of living expenses in liquid savings to use for emergencies, such as unemployment or extended illness.
In the event the family finds that they are exceeding their budget, they can problem solve together to see where they can cut expenses or find ways to earn more income. In some cases, a short-term loan might be all that is needed, which will be much less expensive than putting bills on your credit cards.