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This article is from a series of articles about giving your children the life-skills necessary to effectively manage their money. To go to the table of contents, click here.

Set and manage a family budget

Budgets: The Heart of a Financial Plan

Budgets -written lists of income and expenses- let both adults and kids establish priorities and control spending, and these habits will ultimately result in saving money. Involve your kids in the creation and management of your budget.

Most budgets include two categories of expenses:  non-discretionary and discretionary. Non-discretionary expenses are necessities: rent or mortgage, insurance, telephone, heating and credit card bills. Discretionary expenses include vacations, leisure activities, new clothes and car or home maintenance. Savings should be instilled with your children as a non-discretionary item.

A budget lies at the heart of any family's financial plan. It takes a long time and a good deal of effort to establish a budget that really works, but the result is worth it. Most financial planners suggest taking an "easy does it" approach to making a family budget and financial plan, including savings. A good way to start is by keeping a simple list every month of money that comes in and goes out of the home. You can work together as a family to develop your financial plan.

Budgeting is a lot like teaching kids any skill. Keep things simple at first and build gradually, instead of trying to do it all at once.

Once your family understands how it spends its money, you can begin to factor in savings. Many families find it especially helpful to make savings a top priority and put aside some money before spending it on any items. Most identify savings for particular goals like college, a down payment on a house or automobile, a vacation, or retirement. Defining these family long-term goals for your children is very important. From saving for a new home or college to saving for a family vacation, your kids (like all of us) need to understand the importance of working toward objectives.

Seeing you pay bills and keep track of what you spend and save helps your kids understand the distinction between needs and wants, and makes them think about what is most important to them. To encourage your family to save, hang a picture of the item they are saving for on a bulletin board or the refrigerator. This will keep everyone focused on the goal.

As kids mature, you should give them increased control over their spending and saving decisions. This may mean letting them make bad decisions without "bailing them out" when they overspend, since we all must learn from our mistakes.