Money management often seems like such an “adult” topic, but there are certain mistakes that young families make that they really need to make sure they don’t. Pushing off being responsible with money is very often a very bad day.
Here are their six mistakes and my view on them:
1. What’s Wrong With a Little Debt?
Debt makes it so hard to achieve any financial goal. That’s what is wrong with debt. How can anyone save for their future if they’re working so hard to pay for their past?
It boils down to making a prioritized list of your debts and attacking them one at a time. I’ll be sure to let you know of any other tips I find along the way that could help, but I really think the key is just buckling down and paying up.
2. Flying Without a Budget.
Okay, putting the name of my blog aside, budgets are very useful. If people want to know if they can afford something, they first need to know what they’re spending. They probably also need to know what they are spending on exactly, so they can prioritize the expenses they wanted to add in the first place. What’s a great tool for tracking spending? That’s right, budgets are awesome!
Creating a budget is a little time-consuming, but worth it. Start by making a list of all of your spending categories. Then set your goal for each category and your overall monthly goal. Follow that up by keeping up with all your expenses for a month, making sure to plug them into the correct categories. You may need to add a few categories that you forgot. Don’t worry, that happens to everyone in the beginning.
Once you have a successful budget for a month or two, you will be able to quickly see what goals you need to work on or even categories that you’d like to get rid of completely (memberships you don’t use, subscriptions you don’t need, etc).
3. Retirement Is Decades Away, Right?
Yes, retirement may be years and years away, but 30 years can sneak up on a person really fast. If we don’t save now, when will we start and how can we be sure to have our future covered?
To make it easy, simply auto-save a target amount every month and you’ll be ready to go. Even if you don’t have “enough” right now, every little bit is a great start. Gradually build the contribution amount until you’re hitting you overall target every time.
We save for retirement by automatically contributing to my 401(k), a Roth IRA, and a pension. We also invest at least $2500 a year in high dividend stocks. We’re also hoping to open another Roth IRA by the beginning of 2011. Our biggest financial goal is retirement by age 52, which is less than 25 years away, so we have to save as much as we can.
4. Who Needs Insurance?
Unless you have millions and millions of dollars that can cover your death or disability, you need insurance. If you have kids or any dependent that relies on your income, you need A LOT of insurance.
I’d suggest health insurance, car insurance, life insurance and disability insurance for almost everybody. Even if you don’t qualify for normal insurance, you can still get a guaranteed acceptance life policy. Any self-insured millionaires reading this that would disagree?
5. College Tuition Is How Much?
The article said that college tuition in 18 years could be about $300,000. Ouch. I’d personally save for retirement before saving for my kid’s education, but if you can and want to cover both, save early and save a lot. Make annual or even monthly goals to keep yourself motivated. Also, I’d pray to the college gods for my kid to get a full scholarship. 🙂
6. What Rainy Day?
Emergency funds aren’t just logical; they make you feel better. Save enough to feel secure. Most people suggest 3-6 months of living expenses, and one year has become pretty popular too. Also, make sub-accounts for the house, cars, taxes, vacations, fun money, and stock investments. This is definitely a subjective personal finance subject, so make your goals based on your specific situation. Good luck!
