As Scottish poet Robert Burns famously observed, “the best-laid plans of mice and men often go astray.” We’ve all experienced times when our plans and intentions got sidelined by unanticipated events. Especially in the early years of starting a family, when children come along, careers are getting underway, and life starts to really pick up speed, there are times when “financial planning” yields to “financial survival.”
But that’s not to say that there aren’t some basic principles of financial management that young, growing families should pay attention to. In fact, there are some basics that can help keep a young family’s finances on track and also get back on track when “life happens.”
Dealing with Student Debt
Many young couples are now dealing with student debt. As you do that, be sure to educate yourself on the more favorable terms typically available through federal student loan programs. Another key is to make sure your household budget takes into consideration the specific terms of your loan(s). Remember, there are several alternative repayment plans that may be available for your loans, especially if you get in a bind. Follow the news on federal student financing at websites like studentaid.gov and stay alert to potential developments that could work in your favor.
Key First Steps
Young couples need to be in agreement on some basic financial principles and priorities. In fact, getting on the same page financially is vital to a healthy, mutually respectful relationship. While it’s true that conflicts around money account for the #1 relationship challenge of about 25% of couples, it’s also the case that, when couples have a mutually agreed goal that they are committed to working toward, financial matters tend to be much easier to manage. Certainly, “life happens,” and surprises are inevitable, but when you’re aligned on your goals, it’s much easier to navigate setbacks. Whether a couple’s most important goals are paying for a child’s education, saving to buy a home, or planning a comfortable retirement, when they are aligned and committed, financial harmony is almost always the result.
Thinking the Right Way about Money
Young families face many distractions. For example, recent college graduates often receive a flood of “pre-approved” credit card offers. Watch out: depending on credit cards to meet monthly needs is the number-one indicator of a difficult financial lifestyle. Instead, establish the savings habit early. Aim to set aside a consistent percentage of your earnings in a savings account, with the goal of building toward an investment account to provide long-term growth.
In fact, the number-one rule for growing wealth over your lifetime is to commit to spending less than you earn. This may seem obvious, but if you don’t have a budget and especially if you’re reaching for a credit too often, monthly debt service can steal your ability to save. Try to save about 10% of your income each month. Admittedly, in the early days, you may have to start smaller than that, but even a smaller amount, set aside systematically, can help you toward your goal. As your savings grow, you should also set a goal of investing a portion of your savings in assets that can grow faster than inflation over the long term.
And speaking of saving and investing, you should also take advantage of any employer-sponsored retirement savings plans—like 401(k)s or 403(b)s—that might be available to you. Regular, systematic deposits in a tax-advantaged retirement plan are a primary wealth-building tool. And even if you don’t have access to an employer-sponsored plan, you can make contributions to an individual retirement account (IRA) and begin building a foundation for a more secure retirement.
Risk Management
When you’re starting out, it’s also important to pay attention to managing various risks. Having the right kind of insurance in the right amounts is one of the most important decisions for young professionals and those starting families. Your life, health, and property are your most important assets, and making sure that these risks are properly insured is a foundational part of any financial plan.
Education or Retirement?
When children start to come along, it’s natural for young parents to start thinking about college funds. That’s great, but don’t forget that focusing on saving for your retirement may be even more important than saving for their education. If you don’t have enough saved for retirement, you’re putting your children in the position of having to take care of you. Remember what the airlines say: “Put on your own mask before helping the child traveling with you.”
Build Your Team
Even young families need the right kind of advice. Accessing the services of a fiduciary financial advisor may be an important step toward building the right financial plan for your young family. At Mathis Wealth Management, we work with clients to develop plans that are designed specifically for their unique needs and resources. To learn more, please read our article, “After ‘I Do’: Estate Planning for Newlyweds.”
