If you've just started your family, or are thinking about it, there's probably a lot on your mind these days. From considering which neighbourhood to live in, or starting an education savings fund for the kids, or maybe even taking the plunge and buying a minivan, it seems like there's a never-ending list of big life decisions to make.
Well, here are four simple tips to keep in mind to help ensure your finances grow along with your family.
1. Borrow with caution
This is likely to be the most debt-laden phase of your life. While your income tends to be highest later in your career, many big milestone expenses tend to be higher earlier in your career. Your first home, possibly your first new (or almost new) car, student loans still being paid down, and maybe even some debt from your wedding can seem a bit suffocating. It would be great to be debt-free this early in life, but it's unrealistic for most.
A more realistic set of goals at this point may be:
- Avoid carrying a balance on credit cards
- Avoid borrowing money for anything that has no value after you purchase it.
2. Save for the near future
There are two main categories when saving money for the future: the very distant future, and the near future. During the growing family stage, the very distant future probably means "retirement." Many people have a good understanding of why it's important to save for retirement, but when it comes to saving for the near future, it may not be as apparent.
Saving for the near future is one great way to control your spending.
Instead of borrowing money for vacations and other larger expenses, where you'll have a set monthly payment after the purchase, switch to saving up set amounts of money per month ahead of time for anything that doesn't grow in value after buying it. Instead of paying interest, earn it.
If your near-term savings can't seem to catch up with your planned near-term expenses, that's a clear signal you could be spending beyond your means.
3. Take inventory of your spending
A quick way to reduce your expenses is to pull up all your credit card and debit card statements for any 30-day period, look for all the automatic expenses that occur on a regular basis, and cancel anything you aren't fully taking advantage of. Today, it seems like everything is cheap when you price it in monthly payments. But it can turn into financial "death by a thousand cuts."
If you're not regularly going to your $50/month gym, not maxing out your data allotment on your $80/month cell phone plan, and you've forgotten about all the smaller monthly charges for various online services you're subscribed to, it's probably a good time to cut them out. You can always sign back up for them if you truly miss them. But if you don't, you could find yourself with a lot more financial flexibility month in and month out.
4. Invest for the long haul
When you're younger, you'll generally have a smaller portfolio and a longer time until you'll need to access your retirement savings. Conventional wisdom says that the potential of higher long-term returns comes at a cost of higher volatility.
But remember, if you subject yourself to risk when you're younger, you have more time to recover if markets drop. Suppose your portfolio is down by 10% in a few months. That might generate a lot of pessimistic headlines in the news. But a 10% drop on a $10,000 portfolio is $1,000. That might be less than a paycheque. Keeping that perspective in mind might make it easier to stay the course when you're learning about the tradeoffs around investing. By sticking to your original plan, your portfolio could bounce back to new highs down the road. Learning to stomach volatility when you're just starting out can be a very valuable lesson for the long haul.
With a young family, you've got lots on your mind, financial or otherwise. By keeping these very simple rules of thumb in mind with respect to the building blocks of your finances, it can be easy to avoid getting overwhelmed.
Check out how even a small amount of savings set aside every month can add up with the Tangerine Savings Calculator.
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