Common Financial Mistakes Families Make
Everything is simpler when it’s just you and your spouse. The moment that you start having children though, things begin to change. As your children become older, you have to worry about providing for all of their needs and those needs are bound to become more expensive. That’s why you have to be on top of things when it comes to the finances of your family.
One way that you can be in control of your family’s finances is by staying away from the common financial problems that family encounter. Here are some of those mistakes that you have to be on the lookout for:
Having Too Much Debt
One of the biggest financial mistakes that a family can make is to have too much debt. This can happen early on in a relationship. Partners may think that it is okay to owe a lot since they don’t have children to worry about yet. Being in debt is not really the problem and this is especially true when it is used towards getting a house or some other things that is of equal value and usefulness. But when all that you are acquiring is credit card debt then you are in trouble.
Your overall debt, and that should include all loans that you have, should not exceed 40% of your income. If it goes over that, then that means you owe more than what you can afford. There are even experts who suggest that it should not exceed 30%. When you are in debt trouble at the early stages of your relationship then you should go and seek the help of a professional so those issues would not get worse.
One kind of debt that might be hard to stay away from would be an auto loan. A car depreciates in value very quickly. You will end up owing more than the actual market value of your vehicle. But in some cases taking out a car loan is the only way that a family can afford a car. The most sensible thing to do is to keep the car long after you have paid off the loan so you can start saving for the next vehicle.
Not Having a Written Budget
Another all-too-common financial mistake made by young families is not having a written budget. Some young couples think that it is enough for them to figure out all of their expenses in their head and they need not write it down. But experts say that most young couples tend to underestimate their expenses by almost 20%. What many families do is they spend first and then they think about saving what’s left. In most cases, what’s left behind is not enough.
Write down all of your income and expenses. You should include all the goals that you have for savings and if there is anything left after that, then that can be spent. For most families however nothing would be left.
Not Thinking about Retirement
Many young families do not really think about their retirement. They feel that since it’s still a long way off that they do not have to consider it just yet. But this can be a serious mistake. You won’t be paying for the consequences of this mistake just yet but it’s sure to come.
It is never too early to plan for your retirement. Many young couples fail to take advantage of their 401K but that would be like saying no to free money. When the time comes the money represented by that retirement plan will come in handy when you finally retire. Saving for one’s retirement should start as early as when one is in his 20s. If a person waits until he/she is older that might mean that the person would have to work long after he has reached retirement age.
Wrong Ideas about Insurance
Having to worry about insurance might seem like an inconvenience that you can do without. There is just too much wrong information out there concerning insurance and many young couples are following those incorrect ideas. The rule to follow is that you should have a policy that is ten times your income in a year. As parents, you and your spouse should have a policy of $1million.
Another mistake when it comes to insurance is not getting enough disability coverage. Most people believe that the disability coverage provided by their employers is enough. But that is only a fraction of your income and if you really become disabled then that means you would have additional costs because of medication and other costs. You need more coverage than that.
Not Saving for College
Do you plan on helping your children to go to college? If that’s part of your long term plans then you need to save for it as early as possible. Less than 20 years from now a four year college education is projected to cost around $300,000. That’s a serious amount of money and if you want to help your child with that, then you have to start saving now.
Some families on the other hand, prioritize saving for college even if there is not enough money for the other important things. But the truth is that when there isn’t enough money to go around paying for many of the things that you should prioritize, don’t think about your children’s college education. Your children can always borrow for their college education, but you would not be able to do that for your retirement.
Not Having an Emergency Fund
You should have heard about it before. You need to set aside several months’ worth of your income so you can be ready just in case you lose your job or you lose your main source of income. But the problem is that it isn’t easy to save enough money. If you don’t have even a month’s worth of income set aside in a bank account then you’re in for trouble. It isn’t easy to save enough money for an emergency fund, or to save for anything, but that should not discourage you from trying.
Living Above Your Means
Young couple tend to have good credit scores and that means they are attractive to prospective lenders. If you find yourself in that situation then you should resist the temptation to give in. By giving in to the offers of those lenders you would start living beyond your means. That’s not a great way to get your family life started. You have to practice living with what you earn and when you can do that you will be on the right track financially .
Many young couples struggle with this question. Should they merge their finances or should it be kept separate? If both of you have good credit standings, the answer is somewhere in the middle. You should keep some part of your finances autonomous, but you should start learning how to be a couple financially.
There are many mistakes that you can make as a family but if keep yourself informed then there is no reason why you cannot set your family’s finances in order. There are many things that you have to learn but none of those are really complicated.