When it comes to responsible money management, the most important step is to learn to live within your means. In our culture of instant gratification, it can be hard to distinguish wants from needs. As a young family, this can be particularly difficult with the added financial responsibilities that come with having children. Learning good money management skills can help you manage your finances.
Do you really need it?
Now that baby has arrived, there are so many things to buy. Even with good money management skills, it can be difficult to truly distinguish between what is a want and a need.
• Baby gear: It is very easy to get carried away with baby purchases. Surely, you really do need that fully reclining high chair with the removable tray. Or, all of the latest “learning” toys that will have your baby singing the alphabet before she can sit up. This is a good area to exert some money management muscle. Buy only what you need and do not be afraid of second-hand items for some things (but not for car seats!). You’ll find that you really do not need everything the commercials say you do. Make sure you actually need it before making a purchase and save the wants for special occasions, like birthdays.
• Car: As a young family, you may find that the car that suited you as a young couple does not work for a family. But make sure you actually need a new car before buying one. If you decide that your current car just cannot work with your family, the next step is to make sure that the car you purchase is one you need and not just one you want. Your money management skills help here. Figure out what monthly payment you can afford, and determine what car you can buy for that amount. Don’t be afraid to buy a used vehicle through a reputable dealer.
• Home: In addition to your car suddenly feeling too small, you may find that your house does as well. Again, make sure you truly need a new home and are not just succumbing to wants. Think of the future. What home will meet your needs for the long term? What about schools? With your child still in diapers, it can be hard to believe that kindergarten is right around the corner, but it is. If you do move, be sure to choose a neighborhood with the schools that you want. If you cannot quite afford that yet, make your current house work until you can save enough through good money management and career advancement to buy the house that truly meets your needs.
Pay off debt from the past
A good money management strategy is to get rid of any credit card debts you have. Consider using the equity in your home to consolidate your debt. You can pay off your high interest credit cards with a low interest home equity loan. But remember that equity will no longer be available to you as a down payment if you sell your home. The home equity loan uses up your home equity and must be paid off when you sell your home. It is equally important not to create new credit card debt by buying items that you want but cannot quite afford.
Plan for the future
Even though your children are young, you should still begin saving for college. College expenses are projected to grow astronomically, so it is a vital aspect of smart money management to begin saving now. Set up a college savings account as soon as you can, so the money has the most time to compound.
In addition to saving for your kids’ college, you should also be saving for your own retirement. Continue using good money management to save for retirement through your company’s 401K or other investment accounts.
The key to living within your means is developing smart money management. You have to learn discipline and patience in order to spend your money on what you truly need, and not overspend on what you want.
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