I have the four most common money mistakes young families make. If you’re in that boat, here’s how to turn your finances around, courtesy of Smart Money magazine.
- The first mistake: Young families juggle too much debt. Experts say overall debt – including your mortgage, car loans and student loans - shouldn’t be more than 40-percent of your income. So, if you make $40,000 a year, your maximum debt should be $16,000. Stewart Welch is the author of the 10 minute Guide to Personal Finance for Newlyweds. He says most couples start out with a few grand in debt - maybe they’re paying off an expensive wedding. When they start having kids and paying for daycare and diapers, their debt instantly surges out of control. The fix: Use this mantra for day to day expenses: “If I can’t pay cash, I don’t need it.”
- Another common money mistake young families make: They spend without a budget! Financial planner Steve Kaye says young couples underestimate their expenses by 20-percent. The fix: Write down all your monthly expenses including rent, savings, groceries – even toiletries at the drug store, and set aside that amount. If you have any leftover cash, buy a dinner out – then put the rest in savings.
- Speaking of savings, young families don’t save for retirement. Financial plannerMarilyn Steinmetz says young couples are great when it comes to saving for short term goals – like a new minivan – but terrible at long term goals, like retirement! For instance, not contributing enough cash to a 401k to qualify for employer matching is like walking away from free money! Not sure how much money you’ll need to retire? If you’re in your 30s, experts recommend stashing away 15-percent of your annual income.
- Another money mistake young families make: They skimp on life insurance. A general rule of thumb: have a life insurance policy worth five to 10 times your annual income. Think you can’t afford it? According to Insure.com, a healthy, non-smoking 35-year-old male can buy a 30-year term life policy for $2 a day.
