Families face a variety of financial needs, from daily living expenses to retirement to the costs of college and other big expenditures.
While there is no single answer to cover everyone, there are general guidelines that can help you deal with your needs. The bottom line is how to make the most of your current income.
Your first priority is your daily living expenses – food, shelter, clothes for you and your kids, and paying bills. This is where a family budget can help. List your income, your known expenses and balance those to see where you stand. If having enough to cover all your expenses is tough, you might need to cut back somewhere or find a new or part-time job.
You’ll need to be sure to pay your bills on time – even faster if you can. Interest charges on credit card bills and things like student loans can add up, so the sooner you pay those off, the better.
If you have extra money at the end of the month, it’s time to concentrate on savings. A top savings priority should be an emergency fund that you can fall back on if something unexpected happens, such as a job loss, medical expense or broken refrigerator. Experts recommend tucking away three to six months of normal living expenses.
Another top priority should be saving for your retirement - yes, retirement over socking away money for your kids’ college education. Why retirement? It’s because you can’t borrow money for retirement, but you can borrow for college. You also don’t want to saddle your kids with supporting you when you get older.
Contribute as much as you can to a retirement account, such as a 401(k) at work, and if your employer offers matching funds make sure you’re taking advantage of what is essentially ‘free money.’
Once your have normal needs and retirement covered, think about building other savings. That includes a college fund – such as a 529 savings plan – and other needs such as a car or a down payment for a house.
Working with a financial professional can be helpful. They can help you sort through best ways to cover expenses and how and where to save.
Once you find your comfort zone, you can work on adjusting your finances as your income and savings needs change.
FAQs
Financial needs generally refer to your immediate expenses and obligations, including essential living costs, discretionary expenses, and debt repayments.
How to prioritize financial goals? ›
Here are four key guidelines to help you prioritize your saving and balance your long- and short-term financial goals.
- Create a budget.
- Build an emergency fund, then prioritize long-term goals.
- Save separately for short-term goals.
- Boost your saving and be disciplined about spending.
Fixed Capital Requirement: In order to begin a business, money is required to buy fixed assets like land, building, plant and machinery. This is called the Fixed Capital Requirement. Working Capital Requirement: A business needs funds for its day to day activities. This is known as Working Capital Requirements.
What are the benefits of financial security to the individual? ›
It provides a safety net in times of emergencies and unexpected expenses. Freedom and Independence. With financial security, individuals have the freedom to make choices that align with their values and goals. It enables them to pursue their passions, take calculated risks, and enjoy greater independence.
What do you say for financial need? ›
Briefly Describe your Financial Need for this Scholarship
I am in need of financial assistance in order to attend college because I am a low-income student. I am the 1st child to attend the college. Although my parents gave me many supports, I received a limited financial assistance due to low family income.
How do I write a letter of financial support for a family member? ›
In this letter, you will need to provide information about your family member's financial situation, such as their income, expenses, debts, and assets. You will also need to explain your relationship with your family member and why you are willing to provide financial support.
What are your top 3 financial priorities? ›
Key short-term goals include setting a budget, reducing debt, and starting an emergency fund. Medium-term goals should include key insurance policies, while long-term goals need to be focused on retirement.
What are the four financial goals? ›
It can involve saving plans, spending limits, earning, or even investing. Creating a list of financial goals is vital to creating a budget. When you have a clear picture of what you're aiming for, working towards your money goals is easy.
What are the first three things you should do to set and achieve financial goals? ›
Here are a few tips for establishing and reaching your financial goals:
- Prioritize your goals. Since you're likely to have more than one financial goal, prioritizing them can help make them more achievable. ...
- Create a budget. ...
- Record your spending.
A popular budgeting method that balances needs and wants is the 50/30/20 rule. Under this framework, you allocate 50% of your income toward needs, 30% toward wants and 20% toward savings or debt repayment. This approach ensures that essential expenses are covered before discretionary spending and savings goals.
The income statement, balance sheet, and statement of cash flows are required financial statements.
What is the financial needs method? ›
Key Takeaways. The needs approach to life insurance planning is used to estimate the amount of insurance coverage an individual needs. The needs approach considers the amount of money needed to cover burial expenses as well as debts and obligations such as mortgages or college expenses.
How much money makes you financially secure? ›
It doesn't take an exorbitant salary, either. Americans say they'd need to earn about $94,000 a year on average to feel financially independent. That's about $20,000 more than the median household income of $74,580.
How much should an emergency fund cover? ›
How much should you save? While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
What are your financing needs? ›
Financial needs are expenditures that are essential for you to be able to live and work. They're the recurring expenses that are likely to eat up a large chunk of your paycheck — think mortgage payment, rent or car insurance.
What is an example of a financial want? ›
A want includes expenses that you can comfortably live without and is not essential for survival. This varies from person to person, but some examples are eating out, going to the movies, or buying the newest cell phone.
What is an example of statement of financial needs? ›
My family has made many sacrifices to allow me to focus on education throughout primary and secondary school. I now have an opportunity to become the first person in my family to attend college, though I'm in need of financial assistance to realize what has been a long-term goal for me and a dream for my parents.
What are the 5 basics of personal finance? ›
The Takeaway: Personal finance beginners should start with the basics of earning, saving, spending, investing, and insuring their assets. There's a literacy problem in this country, and it goes beyond reading and writing.
