Managing Family Finances in Difficult Times

by Obinna B. Onwuka
Introduction
The rate at which the cost of living is increasing in most developing
economies is worrisome. In Nigeria for instance the food inflation rate has
risen by 100% within 10 years, moving from 9.62% in November 2011 to
18.34% in October 2021. Similar trends are recorded in rent, electricity,
water, fuel, and transport rates. Yet, Nigeria per capital income has
remained stagnant over many years.
Managing the available household income in light of this challenging times
becomes key to survival of family members as the resources are rarely
sufficient to meet the competing needs of the household
Family Income and Money Management
Family is seen as a group of one or more parents and their children living
together as a unit while Income refers to amount of money, property, and
other transfer of value received over a set period of time by individuals or
entities as a compensation for services, payment for products, return on
investments, pension distribution, gifts, and other transfer of value
(Investopedia).
Family income thus refers to the total income of all the members of the
household. It includes income from these areas:
1. Salaries and Wages,
2. Profit from Businesses,
3. Investment Income (Dividends, Interest, Gains),
4. Rental Income, and
5. Royalties, among others
Finance as defined by Corporate Finance Institute entails management of
money and includes activities such as investing, borrowing, lending,
budgeting, saving and forecasting. ‘Manage’ according Merriam-Webster
dictionary refer ‘to handle or direct with a degree of skill’.
Managing family finances entails prudently applying funds available to the
household toward the satisfaction of the present and future needs of the
family. In management of family finances, careful thoughts are given both to
the sources of income and its utilization.

Who Should Manage Family Finance?

Marriage is teamwork, and managing family finances calls for financial
discipline, impulse control and great ability to focus on the family’s financial
goals.
Couples should therefore work together to ensure that their income are well
applied for the betterment of their family before any other thing. As such, it
is preferable that the partner with more financial knowledge and skill should
have more control over the management of the family financial portfolio.
Trust, respect, communication, and love should however be maintained by
the couples

Factors Affecting Family Expenditure

The amount of money spend by an individual family will be determined by
various factors. Some of them are as follows:
1. Income Level: The capacity to spend depends largely on the amount of the
total income of the family.
2. Size of the Family: The larger the family size the more expenses to be
incurred especially on food, clothing and education.
3. Age of the Family Members: Where the children are still in schools,
expenses on education, clothing and feeding may be relatively higher.
4. Place of Residence: If the family lives in high urban areas, cost of living
will be higher compared to those residing in rural areas.
5. Skills: If some family members have skills in catering, repairs, etc., cost
will be saved in those areas.
6. Financial education: The family member’s level of financial literacy will
impact their spending habit. If the family has carefree attitude over money,
available funds can easily be squandered without proper accountability.

Effectively Manage Family Finances in Tough Times

Money management is critical to the success and happiness of any family.
Beyond just surviving physically, the family’s emotional survival also
depends on its financial stability and tranquillity. In this difficult times
marked with rising inflation rate and uncontrolled depreciation in value of
naira, families must be efficient in management of their available financial
resources. The following measures will be of great assistance in this regard.
1. Identify Existing Income Sources
Effective finance management will entail the family identifying their present
income sources. Couple should check how many income sources they have
and how much total income is estimated to flow into the household during
the period. Carrying this out will assist the family to have a good grasp of
their income sources and inflows expected from them.
Assessing the existing income sources will also assist the family to identify
investments that are not yielding income and funds that are lying idle over
time, thus guiding better financial planning, avoidance of over spending as
well as ensuring all due income are collected.
2. Set the Family Financial Goals
Financial goals are what you set out to achieve with your income and the
achievement of the individual and collected goals of the family add to the
success and happiness of the family. A written financial goal gives focus. It
guides the family towards meeting important needs instead of spending of
on things that are not necessary.
Family financial goals should address need areas such as food, housing,
clothing, education, career growth, savings, investments, vacation,
emergencies, and gifts, among others.
3. Create a Budget
When the financial goal of the family has been set out, developing a budget
will relatively be easy. A budget is an estimation of the revenue and
expenses over a specified future period of time. Budget is a way of telling
your money where to go instead of wondering where it has gone. A good
budget should give priority to the basic needs of the family rather than
wants.
4. Efficient Cash Management
As resources are never enough, households should cut down on
unnecessary expenses; maximize genuine investment opportunities as well
as income losses. Some financial behaviour expected in this regard includes:
 Maintaining financial recordkeeping system or expense tracking,
 Use of spending plan or budget,
 Buying foodstuffs in bulk to take advantage bulk discounts,
 Regular maintenance of house hold assets such as Motor Vehicle,
Generator, buildings, etc., to avoid major breakdown
 Minimising borrowings especially for use household expenses,
 Reconciliation of bank accounts,
 Paying bills on time to avoid penalties and interests,
 Minimising waste such as
 food preservation instead of throwing them away,
 use of energy saving bulbs,
 switching of electric gadgets when not in use,
 use of prepaid meter instead of estimated electricity bills, etc.
5. Save Money for Future Needs
It is said that the money you saved today will save you tomorrow. While
allocating funds to the present needs of the family, plans should be made to
set aside a given percentage of income for future needs. Couples should
establish the percentage of their income that should be saved. It can range
from 10% to 30%.
A dedicated savings account should be opened for this purpose. Account
holders can automate the saving processes to ensure the funds are
transferred to the account on regular basis. Saving goals should also be
established. Where necessary, emergency account should be opened to take
care of unforeseen family expenses like sudden car break down, medical
emergencies, unplanned travel, etc.
6. Give to the Society
Couples should decide the percentage of their income that should be set
aside toward the support of the work of God, general societal development
and welfare of community members.
7. Create Multiple Income Streams
Never depend on a single income, make investment to create a second
source. Those are the very words of Warren Buffet, an American successful
business magnet and investor. With the increasing rate of job insecurity and
rising prices of goods and services, families that live totally on a single
income source are at great risk of running out of cash. Family members
should explore more options of creating alternative income streams.
 Investment in Agriculture or Agric-value chain,
 Sale of commodities,
 Monetise your current knowledge, e.g write e-books, consult, etc.
 Render online services,
 Invest in businesses and real estate,
 Invest in Medium and Long term financial instruments like stocks,
bonds, etc
 Invest in personal development,
 Invest on high income earning skills e.g soft ware engineering, Sales &
copy writing, Digital marketing, Web design, Search Engine
Optimization (SEO), Trade skills, video editing, etc.
8. Avoid Get-Rich Quick Scheme
Another vital aspect managing family finances is to avoid investing funds in
get-rich-quick, ponzi and money doubling schemes. Though these
investment schemes tend to offer quick and enticing Returns on
Investments (ROI), their business models are not sustainable and are built
to dupe unsuspecting individuals of their hard earned money.
9. Plan for Old Age
Couples should have investments that will sustain them in old age. Also
they should maintain an active Retirement Savings Account (RSA) with
government-approved and well-run Pension Fund Administrators
10. Create Time for Leisure
A popular saying goes that all work and no play makes Jack a dull boy.
Families should give room for leisure. Couple should create time for leisure
and vacations both for themselves as well as for entire households. This
however should be on a planned budget.
A funny tweet once read, “It’s weekend. Take a bath…go spoil yourself. Nkwobi
money won’t build a house for you. Stop seeing cement in Everything…” Though it
might be extreme, but it still captures the need to take some relaxation and
fun as this strengthen family happiness and bonds.

Conclusion
Managing family finances can be a daunting challenge especially in difficult
times. Couples should therefore work together and ensure that their
incomes are judiciously applied toward the satisfaction of the most
important needs of their families.
Efforts should also be made toward creating more income sources, avoiding
get-rich-quick schemes as well as imbibing right financial values.

References:
Harris, V. (2014, January) Strong Families: Tips for Healthy Financial
Management. Research Gate.
https://www.researchgate.net/publication/270882290_Strong_Families_Tip
s_for_Healthy_Financial_Management
Sheldon, S. (2020). Managing family finances. Forever Families. Last
accessed 31st March 2022: https://foreverfamilies.byu.edu/managing-
family-finances
Family Financial Management and Economic Strategies. Last accessed 31st
march, 2022: http://www.dl.edi-info.ir/Family%20financial%20management
%20and%20economic%20strategies.pdf

James, J. (2019, October). Managing your family finances. The Guardian.

https://guardian.ng/sunday-magazine/ibru-ecumenical-centre/managing-
your-family-finances/

About the Author

Obinna Benneth Onwuka is a Chartered Accountant. He is an Audit Senior
at Prince Umezulike & Co. Chartered Accountants and founder of Benlika
Consult, a fast growing financial literacy & service firm.