I often come across online articles claiming that a monthly income of $2,800 is hardly enough to support a family of four. But I’d like to say: discussing a family’s expenses without taking income into account is, in my opinion, meaningless. Families with an annual income below $14,000 can rarely spend more than $14,000 a year. Likewise, households earning $70,000 a year will hardly get by on just $14,000. Whether in first-tier cities like New York, Los Angeles and Chicago or small counties, there are high earners and low earners, and everyone is just getting on with life. When people say a monthly salary of $2,800 cannot support a family of four, have they ever thought about those who live in the same city on merely $700 a month? I especially smile when I see people posting that their children’s extracurricular tutoring classes cost thousands of dollars each month, calling these unavoidable expenses.
Now I’d like to talk about how to tell if a family’s spending is reasonable.
Let me start with myself. I have kept accounts for roughly over a decade. I stopped doing so last year, because I have long embraced a minimalist lifestyle and no longer make impulsive purchases. I only buy what I truly need. For example, cat food and cat litter are daily necessities. Skincare products and cleaning supplies are also essentials. When I get new clothes or shoes, I discard the old ones. There are barely any items lying unused at my home for years. (The word “barely” refers to a few seldom-used items such as power tools like a handheld drill.) My mother often visits and asks, “How do you get by with only four bowls at home?” Haha. I know exactly what I need, so I never stock up on extra tableware for unexpected guests. If friends do come over, I’d rather dine out.
Back to the main topic. Here is how to assess whether a family’s expenses are reasonable.
Keeping accounts is extremely important, a point covered in many financial management courses. Record your monthly expenses and where every penny goes. There are numerous accounting apps to choose from, and most can categorize your spending automatically. At the end of each month, review the main spending categories. This simple step lays a solid foundation for saving money.
Keep tracking your expenses continuously for two to three months. Based on these records as well as your income, draw up a budget. Here is how to do it. Suppose your records show you spend $1,120 a month. If your monthly income is higher than $1,120, you can set this as your initial budget. But if you only earn $980 a month, where does the extra $140 come from? It must be credit cards, consumer credit services or personal savings. In that case, you need to reflect on your spending habits.
Classify all expenses into major categories according to the breakdown from the accounting app. Generally, split costs into monthly expenses and annual expenses. For instance, vehicle insurance paid once a year counts as an annual expense, while daily grocery shopping is a monthly expense. Annual expenses are usually fixed costs. Organize all items this way to complete your budget sheet, and stick to it for daily spending.
As you can see from my budget, many items are not absolute necessities, such as piano and dance lessons. But since my income can cover these costs, I include them. This proves that a budget must always be formulated based on one’s actual income.
If your monthly income is $1,120, set your budget at $840. This way you can save $280 every month. If $840 is not enough to cover all costs, adjust the budget to $980. Bear in mind that this budget of $840 or $980 must also account for all annual expenses.
I want to stress again: a budget is made according to your income.
I understand many parents are willing to spend generously on their children’s education, even pushing themselves to the limit to give kids a better start. For me, however, I will always set aside money for my own retirement first, before allocating funds to my children’s education. I need to safeguard my dignity at all times. Just imagine the awkwardness of having to ask your children for money in old age, or scrimping and saving just to keep up appearances. You can see such real-life situations among many elderly people in rural areas.
Therefore, I hope everyone starts learning about family financial planning right now. No matter how much money you have, even if you can only save $14 a year, make a proper plan. I wish everyone who reads this can manage household finances well and embrace a promising future. Feel free to discuss any questions about family finance with me.
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