Guest Author: Jim Vogel
As a young family, few things are more important than financial planning. This is because, when it comes down to it, money helps each member of your household stay healthy and thriving. Having financial stability not only prepares you for unexpected expenses that life throws your way, but it also provides peace of mind and allows you to make the most of life’s big and small moments. Nonetheless, planning your finances can also be overwhelming, especially if you’re new to it.
Solo knows what an important part of securing your future this is. That’s why we’ve provided some practical advice to help you get started:
Saving Before Buying a Home
Purchasing a home is a major part of living the American dream, and it’s a great goal to set as a young couple. While it’s likely to be your largest investment, it will probably be your most valuable asset as well. With that said, it’s important to do it the right way.
Rather than diving into a home purchase before you’re ready, start saving up for a down payment. Yes, you may be able to buy a home with no down payment, but as Redfin explains, this will result in a higher interest rate and mortgage. By saving up enough for a down payment (most lenders require at least 5% of a home’s purchase price), you can secure a much better long-term investment.
Additionally, you will want to do your due diligence by researching the various mortgages available. The conditions of each type of mortgage vary (e.g., credit score requirements, down payment requirements, interest rates, etc.), and it’s essential that you select one that will work out for you both in the short-term and long-term. For instance, you will get better interest rates by going with a conventional loan over an FHA loan, but qualifying will likely require you to have a higher credit score and down payment.
Making a Family Budget
Your budget will evolve as your family grows. Knowing how to make a realistic budget and tweak it when necessary is critical to your financial stability. Write down all of your fixed and variable expenses, as well as your total income from all sources. Then, consider how much money you want to have leftover. After your expenses are taken out, if you don’t have enough money to save or invest in your future, see where you can cut.
Building an Emergency Fund
Having an emergency fund of at least three to six months of living expenses built up is another goal worth shooting for as a young family. If an unexpected illness, injury, home or car repair, or job loss occurs, an emergency fund will allow you to cover costs without having to rely on credit cards. Start putting money toward an emergency fund today. The more you can set aside, the quicker you can build the fund; but even saving a few dollars of each paycheck is better than nothing.
Debt and Taxes
Nothing will kill your financial goals like debt. Aside from your mortgage, it should be your priority to eliminate all of your debt as soon as possible. This includes all student loans, car payments, and consumer debt. The more debt you pay off, the more money you will free up for your family’s future. While the Credit Counselling Society points out this takes a great deal of discipline, eliminating debt is well worthwhile in the end.
Financial planning is more than contributing to your 401(k) or getting life insurance. For young families, it’s essential to make sure you are laying a firm foundation that will provide security today and down the road, come what may.
Connect with Solo for more tips and insights into securing your family’s financial future.