Household finance deals with how families manage money, especially expenses and savings. 

Learning efficient management of household finances is good for our financial health. But why is household finance important? Is there a mathematical formula for saving? Below we answer frequent questions about our household’s finances. 

How to manage our household finances? Income and expenses

Household finances are often a major concern for families. Still, some don’t make a plan for them and miss things that may be harming their financial health. 

We should start with the concept and elements of household finances in order to know how to manage them. Household finance refers to a family unit’s management of money to meet its members’ needs. 

It consists of: 

• Income: the amount of money we receive from a particular activity, like a job. It marks the spending threshold we should only surpass when absolutely necessary so as to avoid over-indebtedness. 
• Expenses: this is the most sensitive part of managing household finances. It’s when you have less money, usually after paying for a good or service. Sometimes, expenses are unexpected; but we can plan ahead for others: 
  - Fixed expenses: a set amount incurred regularly. This includes rent or mortgage instalments.
  - Variable expenses: amounts that can fluctuate, like an electricity or water bill. Though these expenses will never go away, people living together play an important role in reducing them.
  - Ant expenses: occasional sums that we spend but can do without. They include our morning coffee at the office. If you want to learn more about ant expenses, read this article (in Spanish) by Finanzas para Mortales (Finance for Mortals). 
• Savings: an amount of money we put away for future needs. We can save for a specific goal, like buying a car, or in order to have a financial buffer for contingencies. 

Today, there’s no secret formula for managing household finances, since we must look at each family’s circumstances. Still, there are tools and recommendations we can use to improve our finances and, with them, our physical and mental health. Read about it in this article (in Spanish) on the Openbank blog. 

How couples can plan their household finances

Chasing new trends, sales, passing fancies... it all may seem harmless, but it’s actually bad for our financial health. It’s a sign that our household finances are in need of planning: it’s about not only unforeseen or unnecessary spending, but also mismanaged expenses.  Check out this common example:

María and Héctor are a young couple who've decided to move in together. Because both have been working for a couple of years in the industries they studied, they can pay the Internet bill, petrol and other small expenses to manage their incipient finances. But now, they want to make the move to live together. 

After a few months of living together, they sit down and discuss their household finances. Contrary to what they imagined, they’re seeing their monthly income take a dive because of their expenses. So, they make a budget on an Excel spreadsheet based on their income and expenses to compare the difference. 

Even though that’s a good way of getting information, they need to make sure they analyse it the right way. At first, they think the answer is cutting back on their ant expenses: last-minute chewing gum at the shop; a daily snack from the office vending machines; going out for breakfast every day; etc. However, they’ve completely ignored their variable expenses – the ones they can’t get rid of altogether but can reduce substantially if they slightly change their routine. Some common errors are leaving the lights on at home or forgetting the expiry date of food that they’ll have to throw away when it goes bad. 

Basic household finance tips: learn to manage

Today, we have many programmes, apps, books and other tools (like these suggestions from Santander Consumer España in this article in Spanish on its Tu Futuro Próximo [“Your Upcoming Future”] blog) to have better financial health.

Following recommendations for our circumstances and needs doesn’t have to be annoying. As proof, here are three fun challenges you can add to your daily routine to improve your household finances. 

• The sustainable consumption challenge: too often, we consume water or electricity we don’t need. To fix this, we can make a rule so that, when a household member is caught misusing these things, they have to put money in a shared money box. 
• The fun envelopes challenge: leisure plans (especially unplanned ones) can lead to higher expenses than we imagined. To avoid this, at the start of each month, we can use an envelope to put in money allowances for each weekend. We can consider these challenges for sales. The only rule is that we can’t go over the available amount!
• The balanced fridge challenge: How many times, after going to the supermarket without a shopping list, have you realized at home that you bought factory-made pastries and other things, but not something you actually needed? To be mindful of our wallet and our health, having a blackboard in the kitchen for our household members to write down what they need might be useful. That way, we’ll make a list to avoid both temptation and unnecessary spending. 

Can you think of another challenge to help your household finances? Learn about more tools to improve your family’s financial health in this article (in Spanish) by Finanzas para Mortales (Finance for Mortals).