Our Top Money Management Tips for Families
Families come in all different shapes and sizes, which is why you have to match your financial strategy with your family’s situation and financial goals. Taking into account children’s wants and needs, while also considering your partner’s opinions, can make it hard to manage your money and make everyone happy at the same time. This is because each family is different and has different spending habits. If you’re a traditional family, a blended family, or even a boomerang family, you can find a way to reach your goals by creating a strategy that works for your family.
What may work for your family may not work for others. However, with careful consideration and maybe even a few compromises, you can find a strategy that will help you reach your financial goals.
Fact: A family will spend, on average, $241,080 to raise a child until they are 18 years old (p.s. this doesn’t include a college degree).
It’s always in your best interest to be as prepared as possible. This is why we can’t recommend enough that you have a concrete plan if you want to have children and raise a family. The following information should provide you will all the tips and tricks you need to adapt your current money management strategy to a future with children.
Is there a right way to start a family?
Probably not, but there is an ideal way to start a family and that is with enough planning to ensuring full financial stability before bringing children into the world. After deciding whether you’re ready to expand your family, it’s imperative to save money for each baby, especially during the first, most expensive year. Begin saving as soon as possible, even before your pregnancy. Go through your budget and try to eliminate useless expenses, in order to save as much as possible. If you do not have a budget, now is the time to make one, as you’re going to need it for the rest of your life.
Be prepared to not only remove expense from your budget but also to add a lot more. With changing work schedules, there may also be a drop in income. Here are some important questions to ask, as you get ready to have children:
- Who will be the primary provider for your household?
- Will the other partner be able to stay home with the children? If not, will they have a part-time job or a full-time job?
- Is it worth it to pay for childcare?
- How many children are you planning to have?
- How soon do you want to start having children?
- Will you provide support to your children in the future, and how much?
- When do you want to start investing in your child’s college education? Or will they have to rely on scholarships/student loans?
Raising Financially Literate Children
All parents want to spoil their children and provide them with as much as possible. However, doing so may damage your finances and set your children up for financial failure, in the future. It’s important to educate your children on financial lessons early on in life. This way, you won’t be drowning in credit card debt during Christmas, and your children will understand the value of a dollar.
Here are some tips on how to teach your children good money lessons:
- Give kids allowance for doing chores or making good grades. This will teach your children that they have to work hard and earn their money, for the things they want to buy.
- Establish holiday spending limits and help kids make a budget. This will show your children that they can’t have everything they want, but can choose what they want within their budget. This will also show them how they prioritize and how to properly split their money up – spend it all on something big or a few small things.
- Start a savings account for your kids as early as possible. Opening a savings account and helping them put aside birthday or holiday money is a great way to teach your children how to save.
- Get bank accounts before you even consider credit. Children should understand the basics regarding how bank accounts work, and use a debit card before acquiring a credit card. The debit card will help them track and monitor their spending.
- If/when you give kids a credit card, pay close attention and teach them everything. Do not let your children take advantage of you and use your credit card on useless items. Ensure they understand what is an acceptable expense, and how credit cards work (how you must pay them back, how the interest is added, and what happens if you don’t pay them back)
Discuss the Cost of Higher Education
If you want a great job after graduation and plan on living a financially healthy life, you usually need secondary education after completing high school. Thus, as parents, you’re well aware that your children will need some form of additional education.
If your children rely on student loans, try to help them choose their loans wisely and understand the terms of the agreement before applying. Helping your kid understand what they’re getting themselves into and what they’re promising to pay back will help them avoid debt in the long run.
Also consider whether you will be co-signing these loans or if you would prefer to take out your own federal student loan for your child, in order to take on the debt yourself. However, this can have a large influence on your own credit. Beware of the consequences when taking out this type of loan, and know the changes that can happen once your child graduates. You should be fully informed about the terms of repayment, when and how interest will be applied, deferment options, and programs for consolidation.
After Your Children Leave Home
Your financial position can quickly change once your children leave the home and become financially independent. Thus, a small adjustment in your money management strategy is needed. Even though there will be more money available, because there are fewer people living at home, you may also begin to consider retirement. Luckily, if you’ve budgeted properly throughout the years, you can use all the money you’ve saved (from reduced food expense, utility bills, etc.) and put it towards your long-term savings.
Both parents also need to agree on how much they’ll be helping their children, including exactly how much money they’re willing to give. Here are some questions to consider:
- Will you fully support them while they’re attending school or do they need to find a part-time job?
- If you’re providing support, how much? (Set a specific dollar amount, or you may end up giving away more than you can afford)
- When do you expect your children to support themselves? (Even if they don’t attend school full-time or take a smaller course load?)
- What will you do if they don’t get a job after school? What if they don’t receive a high enough salary to support themselves?
Preparing to Have Your Children Move Back Home
Even though you may not know anybody who has moved back home, it is an ongoing issue for many families, especially after the economic recession in 2009. There are many young individuals, who have college degrees, but simply can’t find employment, or even if they have found a job, their salary isn’t enough to cover their current living expenses and cover the cost of repaying their student loans.
If one of your children does move back home, be sure to set house rules firmly and quickly, in order to keep your own finances healthy. Here are some important concerns to discuss with your children:
- Will you expect them to get a part-time job in order to contribute to household bills?
- If so, which bills will they share/cover?
- While looking for a job, how many hours do you expect them to put in?
- How will your child deal with their debts? Will you contribute to their debt?
If you see your child struggling right out of school, try to defer their student loan payments in order to avoid delinquencies on their credit report.
Lending Money to Your Children
If your children are in need, we understand that without a doubt you’ll want to help, but then it comes to lending them money, it’s important that you are aware of the consequences. Lending money to family can cause conflicts, potentially damage your relationship, and can even hurt your credit.
If you’re thinking about lending money to a family member, here are some thoughts to consider:
- Write out the terms of your loan agreement very carefully, and ensure it is in writing (and make sure you have an extra copy).
- If you’re lending the money, do not give an amount you can’t afford to lose. There’s a strong chance you may not get the money back, thus make sure the amount is not big enough to affect your financial stability.
- If you’re the borrower, take the time to review your budget in order to make a schedule on how you will pay the money back, once you’re financially stable. Additionally, set time limits and keep the lender updated on your situation. If your situation hasn’t improved, be honest with your lender and tell them upfront. Avoiding them will only make things worse.