Talking about money is healthy as you start a family. You can take control of finance by being open and transparent about it. When you ask financial experts, they will say that the key to managing your finances is successful saving. By starting early and mitigating money mistakes, you can successfully plan your finances.
Speaking of mitigating money mistakes, you should consider financial advice for young families as a start. Here are some money mistakes you need to avoid:
Buying a house that you cannot afford
When you buy a house, your mortgage will depend on your credit scores and income. You have to be careful though because some banks may approve a mortgage that seems staggeringly high. This will be good from their end but not for you. Remember that the more money you borrow, the more interest you will have to pay.
How to determine how much you can afford? The general rule is not to spend more than 30% of your family’s gross income on housing costs. The 30% does not only cover the mortgage. It should also cover expenses like property taxes, homeowner’s insurance, and annual fees. If you overspend on your home, your long-term savings will surely take the hit.
Paying with plastic
When you hand over your credit card at the register, there is a big chance that you are overspending. Studies have shown that people spend at least 30% more when they use credit cards instead of cash.
What you can do is to use cash in everyday purchases. Plastics (like credit and debit cards) should be used for real emergencies. To make this work, you can tuck them in an envelope in a different compartment of your purse.
Thinking that all debts are equal
When you have debts, it can be tempting to dump money into repaying them. However, it is not always wise to do this. You are probably better off making the minimum payment and allocating more into your retirement especially if the company will match the percentage of your contributions.
What you can do is focus on paying off high-interest debts. It will be a good thing if you can consolidate “bad debts” by transferring them to a credit card with a lower interest rate.
Neglecting long-term savings
When you start a new family, you put off savings and retirement for your child’s education. It is normal that your inclination is to build your children’s education but not to the expense of skimping your nest egg.
What you can do is to stash more cash in your retirement savings because it may improve the eligibility of your child for college scholarships and loans. Your goal is to save at least 10 to 15% of your income.
Going irrational on birthdays
Many new parents think that birthday celebrations “do not sound like a big expense.” Parents are always obligated to splurge on every birthday. With Moneyboat.ca, they spend too much money on birthday presents.
It is not wise to spend so much on birthdays. What you can do is stock up on on-sale gifts. You can save a few bucks, which could add up to thousands over time.