How to ensure your family is financially successful every step of the way.
Family finance can be tough. You have mouths to feed and kids to make happy. You may also have another person’s financial perspectives and habits to take into account. Of course these days, even that may not be the case. Families come in all shapes and sizes now, and the strategy that works for one family unit may not necessarily work for another.
That’s why you have to tailor the financial strategy of your family to the situation that you’re in and the goals that you have together. So whether you’re in a traditional family, a blended family, or a boomerang family, you can craft a financial strategy that helps you reach your goals.
Fact: On average, it takes $241,080 to raise a child to 18 – that doesn’t include college education.
So if you want to have kids and raise a family, you need a plan. The information below can help you tailor your money management strategy to your situation. If you run into trouble, call us or fill out the form to the right to request help. You can also Ask Howard if you have specific questions that need answers.
Starting a family the right way
In an ideal world, you have time to plan ahead and get your financial world in order – and you should take that time to make sure you’re ready to bring kids into the mix. You need to save money for each baby’s arrival, as well as the expensive first year.
So start saving as early and as far in-advance as possible – even before your pregnancy. Revise your budget to cut some expenses so you can set aside the most money possible before the babies start to arrive. If you don’t have a budget in place, you should build one, because you’re going to need it.
You may also have to plan ahead for either the new expense of child care or for a drop in income when you have to adjust your work schedules. So there are some important questions to ask as you get ready to have kids:
- Who will be the primary breadwinner for your household?
- Can the other partner stay home with the kids? If not, will they work part-time or full-time?
- How many kids do you want to have? And how soon do you want to have all of them?
- Do you want your kids to earn their own way in life or will you provide support, and how much?
- Do you want to start investing now in your kids college education or will they have to rely on scholarships and/or student loans?
Raising financially-savvy and understanding kids
Every parent wants to give their kids the world, but doing so may ruin your financial outlook and set your kids up for financial failure later in their own lives. It’s important that you start teaching your kids important financial lessons early. This helps you avoid problems like taking on too much credit card debt at the holidays to make your kids happy.
Here are some tips for how to teach your kids the right money lessons:
- Give kids allowance for doing chores or making good grades. This teaches your kids that you have to work if you want to earn money to buy what you want.
- Establish holiday spending limits and help kids make a budget. This helps kids understand they can’t have everything. They can split the money up how they want – put it all on something big or get several little things.
- Start a savings account for your kids as early as possible. Teaching them to set aside part of birthday and holiday money from relatives or take a little out of their allowance is a good lesson.
- Get bank accounts before you even consider credit. Kids should learn the basics about how bank accounts work and have experience with a debit card before they get credit.
- If/when you give kids a credit card, pay close attention and teach them everything. Make sure they understand what counts as an acceptable expense, how you need to pay the debt back, and how interest gets added.
Addressing the cost of continuing education
These days, you need some kind of secondary education after high school if you want to get a good job. So you know your kids are going to need some kind of additional education to get ahead.
If your kids have to rely on student loans, make sure to at least help them choose their loans carefully and understand the terms before they apply. This can help them avoid problems with debt down the road.
You also need to consider whether you want to co-sign those loans or possibly take out your own federal student loans for your kids and take on the debt yourself. All of this can have a big impact on your outlook and your credit.
Also, make sure they understand (and familiarize yourself) on what will happen once the loans are taken out and what changes may occur upon either graduation or their exit from full-time education. They should know about terms for loan repayment, when interest will get applied and how, options for deferment, and programs for consolidation.
The finance of kids leaving the home
Your financial outlook changes when your kids leave the home, so you need to adjust your money management strategy. You may have more money available, but by the time the kids are out of the house, you’re probably also going to be creeping closer to retirement. You may want to divert budget cost savings from things like reduced food expenses and utility bills to your own long-term savings.
You also need to be clear about how much help you’re willing to give kids. Both parents need to be on the same page.
Here are some questions to ask:
- Are you going to support them fully during school or do they need to find part-time employment?
- If you are giving support, how much? Make sure to set a specific dollar amount, or you may wind up giving more than you can afford.
- At what point would you expect them to support themselves? What if they don’t attend school full-time or take a reduced class-load?
- What would happen if they can’t get a job after school or don’t get the salary they need to support themselves?
That last question above has become a real concern for families following the economic downturn in 2009. Youth are having trouble finding employment, and often the employment that they can find isn’t enough to cover their living expenses and the cost of repaying their student loans.
As a result, there’s a real chance that one or more of your kids might have to move home at least for a period of time. If this happens, you need to set the ground rules early to keep your finances and your sanity intact.
Some important issues to nail down with your kids:
- Do you expect them to get at least part-time employment to help with household bills?
- If so, which bills will they share or what expenses will they have to cover?
- How many hours do you expect them to put in for job searches and interviews?
- What will happen with any debts they incur, like credit card debt, while they’re under your roof?
In addition, if they’re struggling right out of school, make sure they take steps to defer their student loan payments to keep delinquencies off their credit report.
Lending money to family
Loans between family members are well known for causing problems. You want to help your struggling family stay afloat, but the consequences could affect your credit and your relationship.
If you decide to lend money to family (or ask a family member for a loan if you’re struggling), here are some things you need to know:
- Spell out the terms of your loan carefully and make sure everything is in writing so there’s not any question of what everyone agreed to later.
- If you’re the one lending the money, don’t loan money you don’t have to lose. Consider that if a family member is turning to you for money, it’s probably because lenders believe they don’t have the money to pay a loan back. So the chances you are going to be paid are usually pretty low.
- If you’re the borrower, review your budget to make a plan to pay that money back once you get back on your feet. Set time limits and keep them updated on your situation. If you have more trouble, be honest and don’t hide. It only makes things worse if you disappear.