Frequently asked questions about money management plans
What's the difference between a money management plan and a budget?
A budget is a part of a money management plan. The budget is a detailed description of how every dime is going to be spent. Everyday expenses are easy to determine, and everyone understands the necessity for these items. The money management plan actually considers the overall financial plan and ensures that certain expense categories are included in the budget, along with a reasonable amount of savings to accomplish the intended goals. For example, most budgets focus mostly or purely on expenses, but not necessarily on saving for an emergency fund, retirement, college, a new car, new house, etc. However, the result of proper financial planning is an actual money management plan that includes adequate savings for funding your goals and even your dreams.
Why should I have a budget?
Budgeting is extremely important for personal finance success. Planning, creating, and maintaining a household budget or personal budget is one of the best ways to improve your financial situation. The goal of creating a budget is to match what you earn with what you spend so that you are not going into debt every month. Better yet, the goal really is to be able to save money on a monthly basis. Budgeting will ultimately help you to reduce your debt, save money, and feel more secure with your home finances.
How much should we budget for each category?
There are no rules for how much to spend in each category. Everyone is different, and there truly is no right or wrong when it comes to spending as long as you are achieving your goals, paying your bills on time, and have the necessary savings. Based on surveys and census data, it is possible to review some general spending guidelines based on what others spend on average for each category, but of course you also won't know exactly what each category included and how they compare to your categories. Still, it might give you some ideas. Visit categorize.htm which has two links at the bottom of the page. The one caution here is that this is your spend plan, and the allocations per category should be based first on how you currently spend, and then revised based on your desires to increase or decrease certain items.
How much allowance should I give my kids?
Obviously every parent will have a different thought on this subject, usually based on their own background and experience as a child. Also, your own personal financial situation may influence how much and if your kids get an allowance. Some parents believe that children should do chores without reward, while other parents feel that allowance provides an excellent way to teach children how the world works: you work and you get paid; you don't work and you don't get paid. Also, as parents, you will have to decide what the children are responsible for financially. Can they just spend all the money, or should they be forced to develop some savings habits? How about tithing, or how about two pots of savings, one long-term and one for short-term goals? The answer regarding allowance for your children will depend on your financial situation and also the lessons that you want your children to learn, if any. Give them a lot (weekly allowance equal to half their age) or give them a little, but most planners will agree that in almost all cases, the child should take on both household responsibilities (at least clean their room) and financial responsibilities (their own entertainment). Remember, that you can always provide the opportunity for them to earn more by doing extra jobs around the house (not everyday chores) if they really need money.