Financial Mistakes of Young Families

The following is a guest post by Crystal at Budgeting in the Fun Stuff.  Her blog covers living expenses, saving for your future, and the fun stuff in between.  Quickly gaining popularity and a strong following, make sure to check out her other great articles before she goes big-time!

I don’t hit on parental subjects very often since I only have dogs, but I liked these tips in the Yahoo Finance article, The Six Mistakes Young Families Make.  I think these are mistakes made by lots of people, not just young families.

Here’s their six mistakes and my view on them:

1. What’s Wrong With a Little Debt?

Debt makes it so hard to achieve any financial goal.  That’s what is wrong with debt.  How can anyone save for their future if they’re working so hard to pay for their past?

If you just don’t know where to start, check out this past post.  It boils down to making a prioritized list of your debts and attacking them one at a time.  Mr. BFS and I have one big debt left – our mortgage.  We’ve been overpaying it since we bought our home in 2007 and are on track to pay it off no later than 2017.  I’ll be sure to let you know of any other tips I find along the way that could help, but I really think the key is just buckling down and paying up.

2. Flying Without a Budget.

Okay, putting the name of my blog aside, budgets are very useful.  If people want to know if they can afford something, they first need to know what they’re spending.  They probably also need to know what they are spending on exactly so they can prioritize the expense they wanted to add in the first place.  What’s a great tool for tracking spending?  That’s right, budgets are awesome!

Creating a budget is a little time consuming, but worth it.  Start by making a list of all of your spending categories.  Then set your goal for each category and your overall monthly goal.  Follow that up by keeping up with all your expenses for a month, making sure to plug them into the correct categories.  You may need to add a few categories that you forgot.  Don’t worry, that happens to everyone in the beginning.

Once you have a successful budget for a month or two, you will be able to quickly see what goals you need to work on or even categories that you’d like to get rid of completely (memberships you don’t use, subscriptions you don’t need, etc).

Mr. BFS and I operate on a zero-based monthly budget that takes into account all of our normal take-home pay.  Any extra money at the end of the month is divided between savings goals and fun money.  Please email me if I could be of any help when you get started.  I LOVE budgeting.

3. Retirement Is Decades Away, Right?

Yes, retirement may be years and years away, but 30 years can sneak up on a person really fast.  If we don’t save now, when will we start and how can we be sure to have our future covered?

You can check out this post for retirement suggestions, but to make it easy, simply auto-save a target amount every month and you’ll be ready to go.  Even if you don’t have “enough” right now, every little bit is a great start.  Gradually build the contribution amount until you’re hitting you overall target every time.  :-)

We save for retirement by automatically contributing to my 401(k), a Roth IRA, and a pension.  We also invest at least $2500 a year in high dividend stocks.  We’re also hoping to open another Roth IRA by the beginning of 2011.  Our biggest financial goal is retirement by age 52, which is less than 25 years away, so we have to save as much as we can.

4. Who Needs Insurance?

Unless you have millions and millions of dollars that can cover your death or disability, you need insurance.  If you have kids or any dependent that relies on your income, you need A LOT of insurance.  You can check out this post for an idea of what you would be looking for.  I’d suggest health insurance, car insurance, life insurance and disability insurance for almost everybody. Even if you don’t qualify for normal insurance you can still get a guaranteed acceptance life policy. Any self-insured millionaires reading this that would disagree?

5. College Tuition Is How Much?

The article said that college tuition in 18 years could be about $300,000.  Ouch.  I’d personally save for retirement before saving for my kid’s education (as I stated here), but if you can and want to cover both, save early and save a lot.  Make annual or even monthly goals to keep yourself motivated.  Also, I’d pray to the college gods for my kid to get a full scholarship.  :-)

6. What Rainy Day?

Emergency funds aren’t just logical, they make you feel better.  As I’ve suggested before, save enough to feel secure.  Most people suggest 3-6 months of living expenses and one year has become pretty popular too.  My husband and I are shooting to rebuild our emergency fund to 6 months of bare-minimum living expenses ($15,000).  We also have sub-accounts for the house, cars, taxes, vacations, fun money, and stock investments.  In short, we are aiming for a lot.  I like the secure feeling of cash on hand.  This is definitely a subjective personal finance subject, so make your goals based on your specific situation.  Good luck!

Do you agree that these would be financial mistakes for almost anyone?

Can you think of any other suggestions for anybody in their 20’s-30’s?