Do you have an emergency fund? Handling your finances can be scary, and it can be even more challenging if there are a spouse and children involved. Making the right decisions about where to spend and save can be overwhelming, but it doesn’t have to be.
Like anything else in life, it can be broken down into smaller steps. The more time you spend reading, learning, and thinking about your financial health, the easier it becomes.
Build Your Emergency Fund
Your emergency fund should cover at least three months’ worth of living expenses for your household. A larger emergency fund is better, but if you have a credit card or other debt that you want to pay off, it makes sense to build a small emergency fund, and then redirect to paying off debt.
Once the debt is gone, you can work on building a larger fund. Stash this money in a high-interest savings account. This allows you to access it quickly if you need it, while still allowing it to grow.
Most banks have many free savings account options. Set up your emergency fund in a separate account than your overall savings. This makes it less likely that you will dip into it for trivial expenses.
Pay for College
College expenses are growing rapidly. The decision of how to borrow for a better future is personal. Some parents are willing to pay for all undergraduate work, while for others, that isn’t possible. A combination of parent and child responsibility is common, as well.
There are student loans to meet all needs, from students taking out loans for themselves to parental loans to pay for college. Don’t let the idea of paying the entire amount for school overwhelm you.
Having some savings to reduce the amount that needs to be borrowed, as well as paying as you go for some expenses, like books, adds up and reduces the amount of money necessary to make it to graduation.
Save for Retirement
Do not put off investing for your retirement. Money invested early will have more time to grow and give you greater rewards than money invested later.
If your employer matches your retirement contribution, you should prioritize investing the amount you need to receive the maximum employer match. If your employer doesn’t offer a retirement plan, you should still put money back.
IRAs are easy to open and do not require any special knowledge to invest in. Selecting a target-date investment will put your money in a fund that is optimized to grow until you reach retirement age. It will automatically rebalance the closer you get to retirement to less aggressive investments.
Budget for Fun
Financial health does not have to be boring. Build money into your budget, whether it is for a weekly pizza night or an annual vacation.
Having some leeway in your budget makes it easier to stay on track and make sacrifices in other areas to meet your goals.
Handling your finances doesn’t have to be scary or overwhelming. Breaking down your expenses and looking at how you spend money is the best way to understand where your cash is going. You can then decide if you are prioritizing the things that are important to you and your family. Good luck!