There is much evidence to suggest that millennials are facing unique challenges that older generations never had to encounter, especially when it comes to finances. If you are a young adults in your 20s or 30s, chances are you’re at a point in your life where you’re excited by all the opportunities life has to offer while also becoming increasingly more aware of the financial responsibilities that come with being an adult.
Things like a competitive job market and overwhelming student loan debt can severely derail even the best laid plans. So, young adults who already have children or are thinking about starting families have to be smart and deliberate with their money habits if they want to weather these modern times. Having a comprehensive strategy for managing your money and building your wealth can ensure that your family is protected as it grows – and help move you closer to achieving your big financial goals.
Below we’ll discuss some financial planning tips for young families who are looking to set themselves up for future financial success.
Get Specific About Your Financial Goals.
In most aspects of life, setting goals can be extremely beneficial – the same is true for your finances. Take a step back, consider the bigger picture of your life, and get serious about setting goals for what you want to achieve with your money. Whether it’s saving a specific amount for retirement, putting enough money aside to pay for your kids’ future college costs, or paying off your mortgage by a certain age, knowing exactly what you want to do with your money is crucial to smart financial planning.
Be sure to get specific about your goals as you’re writing them. Start by writing down what you want to accomplish, and then give those goals numbers and dates. How much debt do you want to pay off and when? How much money do you want to be saved and by what date? Having an exact amount along with a deadline not only holds you more accountable but gives you a better picture of the steps you’ll need to take to get there. The clearer your destination is, the more likely you are to achieve success.
Once you have a clear understanding of your financial goals and how you plan to achieve them, then you can establish a budget that will help make those goals a reality.
Establish a Budget and Stick to It.
The cornerstone of every strong financial plan is a realistic and comprehensive budget. Taking time to put a budget in place can be time-consuming at first, but it’s important to know exactly where you stand financially so that you can plan for future financial goals in realistic ways. Developing your budget will be much easier if you first take the time to get specific about what financial goals you have and how you want to achieve them.
A budget means nothing if it only lives on paper, so be sure you stick to it to achieve success. Additionally, be sure to continue tracking your spending as you go so that you can fine-tune your budget and avoid overspending. Every quarter or year, be sure to sit down and reassess your budget. Maybe you paid off one of your debts and can now put that money towards a new financial goal. If an unexpected expense came up that derailed you a bit, see if you can cut back on spending to help get you back on track.
Wherever you are in your budgeting process, it can be difficult to constantly stay on top of where your money is going. If you find yourself struggling, use one of these budgeting apps that track expenses for you automatically. There are also online budgeting software tools that you can use to help you build a budget as you’re getting started.
Build an Emergency Cash Reserve.
There’s only one thing that we can be certain of in this life: we don’t know what the future holds. That’s why it’s so critical to your financial health to have an emergency fund you can lean on should you get hit with something unexcepted. Protecting yourself with a cash reserve ensures that you won’t have to dip into your savings, use money that was meant for something else, or go into debt should you be confronted with an unexpected expense.
Typically, it’s recommended that you save three to six months’ worth of living expenses for your emergency fund. However, the reality is that this will change depending on your financial situation and particular circumstances. As you’re deciding how much to save away, consider factors such as job security, your health status, and debts owed.
Be sure to review your emergency fund annually or any time your financial situation changes to be sure that you have enough saved. Big life changes such as having a baby or buying a new home might require you to make some adjustments regarding how much should be saved.
Stay on Top of Your Debt.
One of the most detrimental things that can happen to your financial stability is debt. Loans and credit cards can be extremely useful at the moment and are sometimes necessary, but they can also lead you to spend more than you can realistically afford. Be cautious of opening new credit cards – no matter how good their offers might be. Take the time to read the terms and conditions closely, get to know what the interest rate is and how exactly it will be calculated, understand how hidden fees may be applied to your account, and seek out rewards or incentive programs that are the most beneficial for your situation.
It’s important to not forget that your credit card use will directly impact your credit score, which carries the power to make your life easier or more difficult depending on how you use your card. Having good credit will make buying a car, renting an apartment, purchasing a home, or getting a loan much easier. Having bad credit can not only make those things difficult, but it can also make them impossible depending on your circumstances.
It’s also important to be sure that you have a plan in place for paying off any debt you currently have. As stated earlier, it’s better to be as specific as possible about your timeline for repaying your debts. If you have multiple debts, it may be helpful to start small and work your way up. You might choose to start with the account or card that has the largest interest rate, and while that is a smart idea – paying off your smaller debts can give you the confidence you may need to tackle the larger ones. Sometimes psyching yourself up is worth it and watching those small debts drop to zero can give you the push you need to stay dedicated to paying off your larger amounts.
Take Advantage of the Resources Available to You.
When it comes to building a strong financial foundation for your future family, there is an abundance of resources at your fingertips to help you along. Are you someone who struggles to pay your bills on time? Look into setting up auto-pay for all your bills so that the money comes right out of your account each month without you having to do anything. Do you struggle to keep track of how much you’re spending and where? Consider downloading a budgeting app that will automatically track the coming and going of money in your bank account. Are you anxious about saving enough for retirement while simultaneously raising a family? Look to see what retirement savings accounts your employer offers. Often jobs will offer accounts such as Health Savings Accounts or 401(k)s to their employees, as well as matching contributions. The sooner you begin utilizing these types of accounts, the longer your money will have to grow and compound.
Do You Need a Professional Partner?
While things like goal-setting and apps can certainly help make tackling your finances more manageable, working with a financial professional for a more personalized strategy can help ensure that you’re taking full advantage of all the options available to you. Should you want to talk with one of our financial planners about your financial strategy, please contact us today. We look forward to helping you achieve your family’s financial goals!