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How Much Money Should You Save as a Family of 4?

Team Jar
December 1, 2022
How Much Money Should You Save as a Family of 4?

Having a family and being confused on how to save is normal. This blog can help you understand how to begin your saving process from where and how.

It's a common scenario: you and your partner work very hard to provide a good life for your children. You diligently save for a well-deserved family trip and your children's future education every month. Unfortunately, despite your high earnings, there never seemed to be enough savings to provide a comfortable living for your family.

Is this anything you've heard before? If it does, it is time to assess the problem and take action to reverse the situation. Create that essential household finances budget and break away from the debt cycle.

Making a Budget - Why is It Necessary?

You may despise the term budget, believing that it restricts your spending and causes you to live a thrifty lifestyle. The truth is that a budget aids in distinguishing between needs and desires. A budget allows you to spend wisely and save before spending (Income minus savings equals expenses.)

Smart budgeting shows you how to save using the 50/30/20 guideline. You divide your income into three spending areas. Approximately 50% of your paycheck should be cast aside for essential costs such as food, rent, and clothing, 30% for lifestyle items, and the remainder for loan EMI repayment.

A good budget helps you save at least 10% of your monthly income, if not more. What are the advantages of budgeting monthly? A budget allows you to live within your means. You can discover unneeded and expensive expenses, allowing you to save money.

A budget aids in the achievement of financial objectives by organizing savings and spending. It enables you to save for crises and alerts you to potential financial problems.

An excellent way to save for your kids' education is to put around 50,000-60,000 monthly in a SIP that can offer you at least 12.5% returns. That way, you'll be able to save about 2.5 CR at the end of 15-18 years and have enough at that time. 

Different Approaches to Budgeting For a Four-Person Family

Make a List of All Your Income and Spending

The first step is to list all of your monthly income sources. Salary, rent, income on FDs, dividends from stocks/mutual funds, or any other form of income could be considered.

You then make a list of all your expenses, including family expenses such as grocery bills, fuel/rent, and even loan EMIs.  Make sure that no expenses are left out of the plan.

You may create a budget in a notepad or an excel spreadsheet. Maintain a record of your monthly revenue in one of the spreadsheets. 

Keep note of basic expenses such as rent, food loan EMIs, and so on in the next spreadsheet. The final spreadsheet should include discretionary spendings such as movies, parties, and lifestyle expenses. Keep track of your expenses and income to determine how much you make and spend.

Every rupee you make and spend is accounted for in your home budget.

Keep Track of All Loan EMIs

Managing loan EMIs is one of the most challenging tasks today. Failure to do so may result in falling into the loan trap. People will even go to extreme measures if they are deeply in debt.

Ensure that your debt payments do not exceed 50% of your monthly income. If you have a home loan in addition to other debts, your loan EMIs may be close to half of your monthly income.

Vehicle and personal loan EMIs must not exceed 15% and 10% of net monthly income, respectively.

Loan EMI repayment is a priority, and a sensible budget aids loan repayment.

Make provision for children's expenses.

A child's healthcare bills are fairly significant until she is 4-5. Make preparations in your plan for these medical expenses. Education prices rise while children's healthcare costs fall. When your child enters college, education costs skyrocket. Your budget must prioritize children's healthcare and education.

Plan For a Financial Emergency

Creating an emergency fund is an important aspect of any household budget. Using the household budget, you can save six months of living expenditures (Yours + your Family's) in a savings account or a liquidity fund.

According to one study, more than 90% of residents aged 30-45 would have no cash in a crisis. A household budget ensures that you are not in this category.

Create an adaptable budget.

Create a flexible budget in which you shift excess funds from one area to another. This rule does have an exception - never move money from your emergency fund to another account.

Before We Go

It's time to wrap things up, but keep this in mind. When creating a budget, be honest with yourself and avoid making one that is overly ambitious or sets unreasonable goals. 

Always ensure that you've taken care of the essential spending before you want to save for other amounts. Once you've done that, you'll understand that you're well sorted for your family of four to survive for many more years.