How To Manage Finances When You Have Dependents

By BankBazaar | October 23, 2019

Savings and investments take a backseat when one has to handle dependents like children and parents. But there are a few tips and tricks you can follow to save and invest within a tight budget. Read about them here.How To Manage Finances When You Have Dependents

It is the right thing to take care of your parents in their old age and they, in turn, do their bit by taking care of your children for you. Between managing parents and children, the expenses sometimes spiral out of control. This is a very common occurrence. But if you follow a few simple rules you can keep everyone in the family happy while ensuring that your finances remain in the pink of health.

Set up a budget

When you fear that expenses might get out of hand, the first thing you need to do is put in a budget. The budget will, of course, differ, depending on your income, lifestyle, and liabilities. However, the steps to creating a budget will remain the same.

  • Mode of budgeting – Decide how you want to create the budget. You can go to the age-old method of using your pen and notebook. The drawback here is that everything will have to be done manually including calculations regarding total expenses and finding out which category is taking up all your money. Then, there’s the spreadsheet method. You can create columns for income and expenses. You can even make charts for your expense categories. If you want something more sophisticated, choose online software. There are many free ones available. They are easy to use and provide a number of charts for tracking your expenses and finding out which ones are taking up a lot of money. You can also download money apps that you can use on the go if don’t have the time to log in and use online software. Ideally, you should opt for an app that can be accessed online too so that it is easy for you to see your lists and charts on your computer.
  • Creating a budget – The first step to creating a budget is to have your financial goals in place. Unless you define your goals such as your kid’s education, you can never save enough for them. Divide your financial goals into short-term and long-term ones. Place them in order of priority. For instance, your goal to buy a car is more important than that exotic vacation. This will help you save for the right goals at the right time. Now, list down all your income and expenses and form categories. For instance. For expenses, you could have categories such as utilities, loans, investments, and luxuries. Allocate a budget for each of the expense categories. This will help you control your impulse purchases or at least show you if you are exceeding your limit for a particular category.
  • Sticking to the budget – This is the tough part. Once you have your budget in place ensure you stick to it come what may. Don’t divert your income to other categories unnecessarily. For example, people typically tend to skip their investment for the month and use it for entertainment purposes. This is a strict no-no. Compare your bank statement and your budget to ensure that all expenses have been recorded. Keep cash transactions to a minimum by using your Debit Card wherever you can. This will help you keep track of all the expenses you make. Always adopt the Savings First attitude where you need to allocate your income to savings before spending it on any other expense.

Additional Reading: How Budgeting Can Transform Your Financial Life

Use those tax breaks

Your kid’s tuition expenses can be claimed as a tax deduction. The same is true for an Education Loan that you might have taken. You can also get tax breaks by investing for your parents. For instance, you can claim a tax deduction for the Health Insurance taken in the name of your parents. This is under Section 80D of the Income Tax Act. You not only get a tax deduction, but you are also saved from spending for their medical expenses by getting a Health Cover. Staying in your parent’s house? Pay the rent and claim House Rent Allowance (HRA). You can also claim a deduction under Section 80DDB for the medical treatment expenses made for your parents if they have diseases such as dementia.

Have money talks

Typically, in a large family, money is given to parents or children to spend and is never tracked. Have a ‘money talk’ with the whole family at least once a month. Tell your parents and kids whether your financial situation is on track and what should be done if anything is not right. Teach your kids the importance of saving. If everyone is on the same page regarding money then you can be sure that unwanted expenses will decline.

Follow these simple rules to get your finances in order. And remember, when money is constantly on your mind then something is wrong with your finances. Another thing is to always give priority to investments over savings. Why not start with opening a Fixed Deposit in each of your family member’s names?

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