Every family faces the challenges of managing money effectively. It is difficult to find a great job that brings a regular paycheck. It is even more difficult to manage that money. Unfortunately, most of us don’t even get basic financial education to manage our own finances. Fortunately, there are some simple and smart ways to manage your family’s finances.
1. Identify Your Short Term and Long Term Goals:
Most people have no clue about their short-term and long-term goals. You cannot set aside money for anything, if you don’t know your goals. List down your near-term and long-term financial goals and put a dollar amount and time frame against each.
• Buy a new car – $20,000, 6 months.
• Repay student loan balance in full – $30,000, 2 years.
• Down payment on a new home –$120,000, 4 years.
2. Incorporate Your Short and Long Term Goals Into Your Family Budget:
Most family budgets contain only the income and daily expenses only. They do not include the savings needed to meet the short-term and long-term goals. Ensure that your budget allows setting aside money to meet your goals. For example, you must save $2,500.00 every month, if you plan to buy a new home in 4 years.
3. Use a Pre-Paid Card to Control Your Daily Expenses:
Most people use a credit card as an unlimited piggy bank. This is the number reason for ruining a family’s budget. You must find the amount allocated for monthly expenses from your budget, and open a no-fee pre-paid card in the same amount. Do not spend more than what’s loaded to the pre-paid card. Pre-paid cards must be used carefully, as pre-paid companies typically charge heavy fees on items such as ATM withdrawal and customer support.
4. Choose a Short-Term Adjustable Rate Mortgage:
Most homeowners go with a 30 year fixed rate mortgage. A short-term adjustable rate mortgage (ARM) fits most young families. It will reduce the monthly payments significantly. You can consider a 7 or 10 year ARM. For example, you can visit a website such as Zillow.com or Bankrate.com and find the ARMs with the best rates and low closing costs.
5. Realize That You Cannot Work Forever:
Most people live as if they will work forever. Your number one priority must be to set a regular amount towards the inevitable goal of a safe retirement. Always grab free money from your employer such as a 401K match. If you max out on your 401K contributions, you can open a traditional IRA to save more towards your retirement. Always ensure that you invest in diverse asset classes such as dividend funds, domestic stocks, international funds and treasury bonds. Regular investments over a long period of time compound your returns significantly.
6. Roth IRA for Teens and Young Children
You can setup a Roth IRA for your kids. Educate your kids to put money regularly into a Roth IRA. This helps children to learn the importance of tax-free savings early in their lives. Remember to open an account with a low cost broker such as Interactive Brokers. You don’t want your kid’s earnings eaten by the huge fees charged by fancy brokers.
It is not too late for any family to work on a budget, and start leading a life of financial independence. A happy family is a family free from financial worries.
Information credit to Dyck Insurance, an Edmonton insurance agency.