Unexpected expenses are the bane of a young household. Young families face their unique challenges. Below are 8 tips for managing your family finances that can help you reduce some financial stress in the long run. They’re simple, but sometimes applying the simplest changes to your lifestyle can make a large and positive difference to your financial situation.
8 Tips for Managing your Family Finances
1. Spend less than you Earn
At the risk of sounding like Captain Obvious, to get ahead financially you must spend less than you earn. With the advent of credit cards, lines of credit and interest-free store loans, it’s never been easier to spend money that you haven’t yet earned. That’s why I’m a fan of the old lay-by system that is virtually obsolete these days. It seems like something from the dark ages; you put down a deposit on an item, pay off installments until it’s fully paid and then take home your goods. One tell-tale sign that you are spending more than you earn is that you’re not able to pay your credit card in full at the end of the month. Or, even worse, if you have to redraw money from the mortgage to cover monthly bills.
2. Start an Emergency Fund
One of personal finance’s most-repeated mantras is “pay yourself first.” No matter how much you owe in student loans or credit card debt, and no matter how low your salary may seem, it’s wise to find some amount any amount of money in your budget to sock away in an emergency fund every month.
Having money in savings to use for emergencies can keep you out of trouble financially and help you sleep better at night. Also, if you get into the habit of saving money and treating it as a nonnegotiable monthly expense, pretty soon you’ll have more than just emergency money saved up: You’ll have retirement money, vacation money, or even money for a down payment on a home.
3. Lifestyle Compromise
Our young earners realise that they won’t be able to match up to their parent’s lifestyle. They don’t want to lean on their parents’ wealth or live with their parents, and find that they have to make a lifestyle compromise in terms of house, car and other simple luxuries they had taken for granted. The wealth and income of a mature household is definitely likely to be higher than one that has just begun to earn and grow.
4. Control your Financial Future
If you don’t learn to manage your own money, other people will find ways to manage it for you. Some of these people may be ill-intentioned, like unscrupulous commission-based financial planners. Others may be well-meaning, but they may not know what they’re doing, like Grandma who really wants you to own your own house even though you can only afford one by taking on a risky adjustable-rate mortgage.
Instead of relying on others for advice, take charge and read a few basic books on personal finance. Once you’re armed with knowledge, don’t let anyone catch you off guard whether it’s a significant other who slowly siphons off your bank account or friends who want you to go out and blow tons of money with them every weekend.
5. Know where your Money goes
Once you’ve gone through a few personal finance books, you’ll realize how important it is to make sure that your expenses aren’t exceeding your income. The best way to do this is by budgeting. Once you see how the cost of your morning coffee adds up over the course of a month, you’ll realize that making small, manageable changes in your everyday expenses can have as big an impact on your financial situation as getting a raise.
In addition, keeping your recurring monthly expenses as low as possible can save you significant money over time. Even if you can swing an amenity-packed apartment now, picking something plainer could let you afford to own a condo or house sooner than you otherwise would.
6. Secure Finances
Securing ones financial life from unexpected events is critical for a young household. Without the protection of insurance, the household will be devastated should a tragic event occur. As a rule, until enough assets are built that can generate an income that will replace the income of the household, insurance is the fall back. So is the emergency fund of readily accessible corpus to tide over six to nine months of expenses should the income come under risk. These critical financial goals should not be compromised.
7. Protect your Wealth
To make sure that all of your hard-earned money doesn’t vanish, you’ll need to take steps to protect it. Here are some steps to think about, even if you can’t afford them all right now.
If you rent, get renter’s insurance to protect the contents of your place from events such as burglary or fire. Read the policy carefully to see what’s covered and what isn’t.
Disability income insurance protects your greatest asset the ability to earn an income by providing you with a steady income if you ever become unable to work for an extended period of time due to illness or injury.
8. Financial Comfort
It is more about the mindset than about any rule based or milestone based event. As one settles down to the pattern of one’s income and expense, it is easy to see where the loopholes are. A systematic dissatisfaction with inability to meet expenses must point a young household to rethink its income strategies. They may seriously be earning less than their aspirations. Or, a consistent inability to control expenses might represent an emotional spending issue. Without diagnosis and introspection, personal finance will remain mysterious and stressful.