Effective Budgeting Tips for Multigenerational Households
According to the Pew Research Center, the number of Americans living in multigenerational households surged over the last four decades from around 14 million to nearly 60 million people, comprising almost 20 percent of the U.S. population.
According to survey respondents, the primary reasons for the surge were finances and caregiving obligations. Today, with high housing costs, rising student debt, and people marrying later, it's not unusual for young adults to live with their parents to save on expenses.
Those in the "sandwich generation" find themselves caring for both their children and parents under the same roof. For many, multigenerational households are the most practical option for avoiding the rising cost of long-term care.
Budgeting for a multigenerational household can be challenging due to the varying financial needs and priorities of older and younger household members. Here are some effective budgeting tips to help manage finances in a multigenerational setting:
Open Communications
Fostering open and honest communication about financial goals, expectations, and responsibilities is critical. As a family, discuss each family member's financial situation, including income, expenses, and savings goals, and determine what each can contribute to the collective cause.
Identify Shared Expenses
To help distribute financial responsibilities fairly, clearly define and identify shared expenses that everyone contributes to, such as rent or mortgage, utilities, and groceries. Take the next step to break expenses down into 'essential' and 'wants' (non-essential). Then, prioritize all expenses from the most important essentials to the least important wants.
Total Income from all Sources
Add together all the money brought in by all household members, including wages, passive income, and Social Security.
Establish Savings Goals
Discuss and set savings goals for the family, including short- and long-term objectives. Goals should be realistic and achievable with time horizons.
Create a Joint Budget
Develop a comprehensive budget that considers the needs and goals of each generation living in the household. Include categories such as housing, utilities, groceries, healthcare, and personal expenses.
An effective budgeting method in a multigenerational setting is the 50/30/20 method, where 50 percent of the total income goes towards needs, 30 percent goes towards wants, and 20 percent goes to savings. If 50 percent is not enough to cover all your essential expenses, adjust the number upward and reduce the 30 percent number for wants downward, but try to keep the 20 percent for savings intact.
Build an Emergency Fund
Your first savings goal should be to establish a joint emergency fund to cover unexpected expenses. This can prevent financial strain on any one generation and ensure that resources are available for emergencies. Once you've built your emergency fund to cover at least six months of living expenses, you can prioritize other savings goals.
Designate Financial Roles
Assign financial responsibilities based on each family member's strengths and capabilities. For example, one person may be in charge of bill payments while another handles grocery shopping. This ensures that tasks are distributed fairly and efficiently.
Regular Family Meetings
Schedule regular family meetings to discuss financial matters, review the budget, progress toward savings goals, and address any concerns. This ongoing communication helps everyone stay informed and engaged in the family's financial well-being.
Set Boundaries
Clearly define boundaries regarding personal finances. While sharing certain expenses is crucial, respecting everyone's financial autonomy for personal and discretionary spending is essential.
Take Advantage of Economies of Scale
Leverage the benefits of sharing resources in a multigenerational household. Bulk purchases, shared services, and joint memberships can help reduce costs for everyone.
Utilize Technology
Use budgeting apps and financial tools to track expenses, set financial goals, and monitor progress. These tools can facilitate transparency and make it easier for everyone to stay on top of their financial responsibilities.
Financial Education
Promote financial literacy within the family. Share resources, provide guidance on budgeting, and offer support for individual financial goals. A well-informed family is better equipped to make sound financial decisions.
Adjust as Needed
Be flexible and willing to adjust the budget as circumstances change. Life events, job changes, or other factors may necessitate modifications to the financial plan.
By implementing these budgeting tips and fostering open communication, multigenerational
households can work together to achieve financial stability and meet the diverse needs of each family member.
Need more help figuring out the best solutions for your family? At Massie Financial Planning, we take the entire family’s picture into view and can help advise on matters related to being a member of the sandwich generation. Simply schedule your complimentary Discovery Call here and let’s get started.