Successful Financial Planning

Written by: Virginia Cooper at learnaliving.co


For many young families, navigating financial planning can be a tough process. There are countless additional expenses that come with starting a family, which is why it’s important to create a budget and establish good habits. You can start now by setting aside money for different future needs, including buying a home, college tuition, and retirement. With solid saving and spending habits, you can ensure your family develops a strong financial foundation. College of Hope offers the following guidance for young families who need help with their finances.


Making a Plan


Managing finances often feel much more stressful without a plan. Luckily, there are many ways to establish a family budget, whether it’s working with a financial advisor or using budgeting software that tracks transactions and helps identify spending trends.



One great technique when making a budget is to create spending buckets. Start by setting up different bank accounts for different purposes, and set up your salary to go into each of the buckets you create. As an example, you can set up a savings account, one checking account for fixed monthly costs, and a second checking account for entertainment and dining out. By differentiating these accounts, you’ll be able to track your spending more effectively.


Eliminate Debt



Paying off debt can be one of the more challenging aspects of financial planning. As you make a plan for tackling debt, first focus on paying off the credit card or loan that carries the highest interest rate. For example, a credit card with a 25 percent interest rate should be prioritized over a subsidized student loan.

Additionally, and if you can, pay more than the minimum balance each month. Use salary bonuses or other additional income to help pay off your debt, and consider reducing your lines of credit as you pay them off. To help you stay on track and maintain motivation, write down your debt-eliminating strategy and record your progress in an app or in a personal financial journal to watch your debts shrink.


A key piece in your debt elimination process should be establishing an emergency fund. For starters, you should set aside $1,000 to cover any unexpected issues that arise, like a car repair or appliance replacement. Once you have that covered and have enough elbow room in your budget, amass three to six months of your salary in savings, per Smart About Money. This amount is to help you through ongoing troubled times, such as a major illness or job loss.


Lastly, depending on your situation, you might want to consider a debt consolidation program. As Nerd Wallet explains, this makes sense if your credit history is strong enough to qualify for a low-interest loan or credit card that will absorb your debts. It should also reduce your monthly payment and/or the amount of interest you pay. You should only enact a debt consolidation plan if you can maintain the discipline to not accumulate fresh debt. Also, keep in mind that it’s best to avoid using secured debt to pay for unsecured debt (ie, avoid risking your home by refinancing it in order to pay off credit card debt).


Savings


For young families, saving money is vital. When you create your budget, determine what types of savings you’ll need. For example, you may want to set up different savings accounts depending on your goals for the future.


Saving for a first home is often a top goal for young families. Buying a home is a tried and true way to build your assets, and is a cornerstone of the American dream. In an ideal world, buyers have a sizable down payment saved up to help secure a low interest rate and a lower mortgage payment, but not everyone can save the 20% required for most conventional loans. Fortunately, there are several loan programs available with lower down payment requirements, or no down payment if you’re a veteran. If buying a home is at the top of your list, saving and planning for what you can afford is the first step to achieving this dream. Just remember, the more money you can save up for your down payment, the better your terms will be.


In addition to saving for a home, if you want to help your children attend university, setting up a college tuition fund early on is a great idea. However, if your savings capacity is limited, you should prioritize setting up an emergency fund that can cover unexpected costs such as home repairs or medical bills. Other important savings goals for young families include retirement funds and rainy day funds to pay for expenses such as car repairs or vet bills.


If you’re finding it hard to save money each month, you may want to research a few savings tips. One great way to save money each week is by planning your meals and avoiding eating out. You can also invest in reusable items such as buying washable cloths instead of paper towels. Buy second-hand goods where you can — used clothing is great for kids as they grow, and recreational gear such as bikes can usually be found online or through community forums.


As you start the process of financial planning, take a hard look at your spending habits and use budgeting applications to help you. Focus on eliminating debt, and prioritize paying off accounts with the highest interest rates. Set up savings accounts for buying a home, retirement, emergencies, and college tuition. By establishing a solid financial plan now, you’re paving the way for a bright financial future.



The College of Hope is dedicated to helping individuals and families build the skills they need to live their best lives. For more information, please visit our website.


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