When it comes to a family's financial situation the one single most important aspect is budgeting. A family not living on a budget is a family living on the brink of financial disaster. The financial impact of a family budget is tremendous.
The sad reality is that most families in the United States do not live on a budget. I even know people that don't even balance their checkbook. I have had conversations with people who say they do fine financially without having to hassle with a budget. Most of those people are doing okay financially. They tend to do most of what they want and their take home income keeps them afloat. But eventually they will want to retire, and in most cases they have no savings when ready to retire. Did you know that a majority of people who can participate in a 401(k) retirement plan at their place of employment do not participate. They will say they can't afford it. The simple reason they can't afford it is because they do not budget. So even if some people seem to do okay without budgeting they should ask themselves if they are saving money.
Most financial advisors will tell you that you should put back at least 10% of your income in savings. We should strive to do more than 10% savings and for most people who are living on a middle class income or below that can be difficult. This is where the family budget comes in.
Basically a family budget, simply put, is just a financial plan allocating portions of your income to spending categories. This is where savings come in. A family budget will take into consideration all of your debt payment requirements, necessary spending such as groceries, clothing, medical, etc. and discretionary spending. But any good budget will take a minimum of 10% off the top for savings and for those of us who are Christians another 10% for tithing, which leaves 80% of our income left for all that other stuff. That 10% saved with compounding interest can make a substantial impact on your financial situation. Here is an example: If you make $30,000 a year and save 10% ($3,000/year) for 30 years earning a modest 5% interest rate, after 30 years you would have nest egg of $118,931. For someone that makes $60,000 a year that number jumps to a nest egg of $237,863 and anybody can earn 5% interest. Just think if you jumped that up to 8% (which is achievable over the long haul) a $30K/year income would have nest egg of $285,073 and the $60K/year income would have a nest egg of $570,147.
So some of those folks making a $60k/year income not living on a budget and saving anything could put a little more financial effort forward and when they get ready to retire it could make a $570,147 difference in the remaining years of their life. Or the $30/year income person could do the same and it would make a $285,073 difference in the remaining years of their life. That's not pocket change folks, that's the financial impact of a family budget.
What about the folks living on a low income such as minimum wage? Lets take a minimum wage income as an example. The current minimum wage is $5.15/hour, which comes to $10,712/year. Putting back 10% is just a measly $88/month which after 30 years, with a 8% return, a nest egg of $100,345. That's the worst case scenario of the impact of a family budget. Keep in mind most people don't live on minimum wage their whole life, they eventually begin to earn more. As they earn more, with the aid of a family budget, they can live within their means and ensure they are saving for the future.
So get with it. If you don't have a family budget that allows you to save back at least 10% then get on it now. You won't regret it, especially in 30 years when you are ready to retire. For more information on family budgeting, other family financial information and advice such as this, visit the Family Piggy Bank at www.familypiggybank.com