Families face a variety of financial needs, from daily living expenses to retirement to the costs of college and other big expenditures.
While there is no single answer to cover everyone, there are general guidelines that can help you deal with your needs. The bottom line is how to make the most of your current income.
Your first priority is your daily living expenses – food, shelter, clothes for you and your kids, and paying bills. This is where a family budget can help. List your income, your known expenses and balance those to see where you stand. If having enough to cover all your expenses is tough, you might need to cut back somewhere or find a new or part-time job.
You’ll need to be sure to pay your bills on time – even faster if you can. Interest charges on credit card bills and things like student loans can add up, so the sooner you pay those off, the better.
If you have extra money at the end of the month, it’s time to concentrate on savings. A top savings priority should be an emergency fund that you can fall back on if something unexpected happens, such as a job loss, medical expense or broken refrigerator. Experts recommend tucking away three to six months of normal living expenses.
Another top priority should be saving for your retirement - yes, retirement over socking away money for your kids’ college education. Why retirement? It’s because you can’t borrow money for retirement, but you can borrow for college. You also don’t want to saddle your kids with supporting you when you get older.
Contribute as much as you can to a retirement account, such as a 401(k) at work, and if your employer offers matching funds make sure you’re taking advantage of what is essentially ‘free money.’
Once you have normal needs and retirement covered, think about building other savings. That includes a college fund – such as a 529 savings plan – and other needs such as a car or a down payment for a house.
Working with a financial professional can be helpful. They can help you sort through best ways to cover expenses and how and where to save.
Once you find your comfort zone, you can work on adjusting your finances as your income and savings needs change.
