The freedom to travel and family finance go hand-in-hand in our family. In fact, I was only able to plan my best trips after I set up a robust money management system that helped me to manage our income in the right way. Please read my previous blog: How we manage our family finances where I explain the basics and how we make use of the Six Jars system.
There is a big chance that you haven’t been doing any budgeting yet. According to surveys done by Gallup, only one-in-three Americans prepare a detailed household budget. Are the Europeans better? No, they are not! A Dutch study done by Vakantiepanel.nl says that in Europe, only 35% budget their holidays.
Hopefully, now you’re thinking: Maybe I should start budgeting, or try to do it better? Or, I always wanted to do that, but where should I start?
Here, I’ve written several financial rules that will help you to start:
Rule 1: KNOW YOUR NUMBERS
When I talk to people about their financial situation, I’m really surprised by how little they actually know about it. By saying that I don’t mean the difficult accountancy schedules, I mean just knowing their numbers: income and spending. Many of you probably know your net income, but what about the necessary expenses?
Exercise 1: Figure out your necessary expenses.
You can’t manage your money without knowing how much you are earning and spending. Download all the overviews of your bank accounts and credit cards and highlight only the necessary expenses. Try to divide them in (1) fixed necessity and (2) variable necessity. We use excel for this and it works perfectly. With a bit of creativity, you can categorize your spending easily and even make charts and graphs of your financial situation.
Our housekeeping book looks like this: (1) Fixed Necessity and (2) Variable Necessity
(1) Fixed Necessity
- Mortgage repayment/interest paid
- Childcare + nanny
- Electricity, internet, and telephone bills
- In our family, we also put here our Netflix, Spotify and newspaper subscriptions
(2) Variable Necessity
- In my family, we also put here all necessary spending for the kids, like clothes, school trips, books etc
Basically, this is the money you need to live on and should be generally 55% of your net income at max. Are those expenses higher than 55% of your total net income? Try to figure out how you can cut some of the costs, or how you can increase your income.
Exercise 2: Figure out your other expenses and give them a label.
Try to fit them into the four jars. Again, for us excel works wonders here.
- Big purchases (holiday/ travel, other purchase)
- Education (books, seminars, training)
- Play (your personal spending)
- Gifts (charities, gifts)
Are you saving money each month from your paycheck for later (maybe for your retirement)? Very good! Budget this in the next jar:
Exercise 3: Make a balance sheet!
Since you divided all your expenses into the jars, you can make up the balance. Does your net income cover your expenses? Yes? Good! You probably have money left to save. No? You can easily see which jar contains more than it should (according to the Six Jars philosophy, see my previous blog on this topic). Try to lower non-necessary expenses. Also check my next blog: How to get rid of credit card debt.
Rule 2: APPLY A MONEY MANAGEMENT SYSTEM
This is the money management system I explained in my previous blog. The best part of it, this system ALWAYS WORKS!
I would recommend to start with applying the system just with your pay date. You can start by calculating your current monthly income and the amount to be put into each of the six jars. Then, track how much money you receive and spend weekly or monthly. Keep this up until you have a good understanding of your expenditures and feel in control. Becoming aware of your spending pattern is an important step in the right direction.
The only big risk of failure here is to not start budgeting at all! So, be disciplined and don’t make any excuses. It’s always easy to say that you will do it next week or next month, or “I don’t have time for it right now.” The question to ask yourself is: What are your goals and how badly do you want to become financially free? Do you want to travel with your family and spend money without guilt? If you are serious about your financial goals, then no excuses should be permitted. Just start NOW—and stick to your plan.
Rule 3: PRIORITIZE
What is most important for you at this very moment? Do you have any goals? Maybe getting rid of your debt, buying a new car, or traveling? Whatever the goal is, write it down and put it as priority #1! Two years ago I decided that we needed to travel more. My previous beliefs told me that traveling abroad was a luxury that only maybe one day I could afford (money wise and time wise). But I said to myself: Travelling is one of my priorities. We have decided to travel A LOT with the kids NOW, not later. I’m sure that now is the right time to travel, since they are so eager to embark on any form of adventure. And we all enjoy the time spent together as a family. When they turn 20, and probably years before, they might be less inclined to hop on a family trip. Oscar is already dreaming of sailing with his buddies or going around the world solo. This means that traveling comes way above buying fancy material things, like an expensive car (we would love a Tesla for instance, that maybe one day we can afford) designer clothes, or fancy gadgets. It’s just as simple as that.
I hear you thinking: “I put our income together and divided roughly on the six jars but I found myself getting stuck!” or “If I apply this system, there is certainly not enough money to travel!” Perhaps you couldn’t make the sums work: “There’s no way I can squeeze my necessary expenses into 55% of my income!”, or perhaps you keep slipping back into your old spending habits and can’t find the discipline to stick to the plan. Well, the good part is: We all went through it and you just need some time to get there. There is no easy way to earn money very quickly AND enjoy your life. It all comes with discipline, consistency and time. And remember: habit is more important than the amount! Just tell to yourself: “I am an excellent money manager” and try to start with budgeting.
Here are my TOP resources and tools:
- Millionaire Mind Intensive: This seminar helps you discover areas in your life that have been holding you back financially, and learn ways to change them.
- Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth – Amazon.com
- com for the US market
- Afas personal – for the Dutch market
- Excel – as simple as it is…
 Book “Geld, Gezien & Geluk” Eng: “Money, Family and Happiness” author Eef van Opdorp and Danielle Knappen