As a California business attorney, I know it’s hard to go from handling your money as a single person to handling money as a couple…
When you add children to the mix, it gets even tougher…
Birthday parties, karate lessons, family vacations…
All the things we want our children to have can put a pinch on the family budget.
If you have a young family, you need to be smart about your finances to make sure your family is taken care of.
Here are six common mistakes young families make when it comes to money. How many apply to you?
1. Too Much Debt
Most people see debt as a way of life. But if you want your children to have a sound future, do whatever you can to avoid carrying excess debt. Pay off those credit card balances as quickly as possible, or at least make sure that if you do use debt, you are still living within your means. Forego a new car every 4 or 5 years.
2. No Budget
Say the word “budget” and many young parents will just laugh and say, “Who can afford to budget?” The real question is who can afford not to. A budget is nothing more than a smart plan for how you spend your money. If you don’t plan, it’s too easy to go on binge shopping sprees or pick up that little something extra at the grocery store that you really don’t need. Budgets help curb impulse buying.
And when you’re sitting down to do your budget, be honest. Most young couples underestimate their expenses by 20%.
3. No Retirement Savings
Retirement may seem like it’s a lifetime away when you’re raising your children but it will be upon you before you know it. First, get out of debt and save some money for emergencies. Then do everything you can to put money away for retirement. If your employer matches your 401(k) contributions, you need to contribute as much as possible. Forget about saving for a new car until you’ve maxed out your 401(k) contribution.
4. No Insurance
As young parents, a term life insurance policy is probably all you need. Term life is less expensive than whole life insurance. Talk to a reputable insurance agent about how much you need and the best policy for your family.
5. Not Saving for Education
The cost of a college education has gone through the roof. Now, just imagine what it will be like when your 3-year-old is ready for college. Some estimates are that in 18 years, a four year private college education will cost more than $300,000.
After you’ve put money away in an emergency fund, cleared your debt and maxed out your 401(k), your next savings goal should be your children’s education fund.
6. No Emergency Savings
By now, you’ve probably noticed that we’ve mentioned emergency savings several times. That’s because so many young couples don’t think about planning for emergencies. It’s tough to put extra money away “just in case” when you’re raising a family. Every penny seems to be spoken for.
But you need to have three to six months’ salary set aside for emergencies. Put a little away every time you possibly can. Don’t let the numbers daunt you. Just set it aside in an account and leave it there. With today’s job market, having those emergency funds is more important than ever.
You may be thinking that right now it’s all you can do to just take care of your children. But planning ahead for your family’s welfare is the greatest gift you will ever give them.
As a California business attorney, I can help you plan.
Get started by giving our Newport Beach office a call at 949-260-1400. When you call, ask to schedule a Family Wealth Planning Session. Our fee for this session is normally $750 but we’ll waive that if you mention this article. Call today!