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7 Habits of Financially Effective Families

The pandemic has changed a lot for many families across the globe. For American families, it has changed the way they approach their finances. According to a recent debt.com survey, 80 percent of families are now using a budget—a big leap from a similar survey conducted in 2019, which found that 68 percent used a budget. 

Majority of families have become more dialed into their personal finances. In fact, over half of Americans say the pandemic made them more aware of just how much they were spending. 

We spoke with two local experts to get the scoop on how you can get the most bang for your hard-earned buck. 

Meet the Experts

Have Financial Goals

An important first step in the financial planning process is to establish clear goals. These goals will look different for everyone because they will be based on the individual family’s near and distant-future plans, such as housing goals, travel, college savings and retirement. When setting financial goals, it’s important not to be too vague. 

“Where most make mistakes is not being specific with their goals,” says Lamont Brown. “Be specific with a set date and a set amount. ‘I want to pay 100 percent of my child’s expenses at public in-state school in three years,’” he shares as an example. 

It’s also essential that everyone in the family be part of the planning process and get on board to avoid conflict later on. 

“Have a conversation with each other about college goals, housing goals, etc.,” suggests Jessica Shaulis. “There will be different priorities/goals for each family.”

Create a Monthly Budget

“A solid budget is the foundation of a healthy financial plan,” says Shaulis. 

Essentially, a budget tracks your income and expenses and tells you what’s left over. Over time, a budget can reveal certain patterns and help identify wasteful spending. For instance, how that mere $5 coffee-and-doughnut expenditure five mornings a week adds up to $100 a month. However helpful, creating a budget can seem like a daunting task. Brown agrees. 

“This can be challenging, and I’m a fan of using software to help,” he says. “The first app I ever purchased was an electronic personal finance program, and I’ve used software to help manage my home finances for decades. A great software tool should prevent you from spending more than you have, allow you to import transactions from your bank, and enable you to track and review your past spending.” 

No matter how you choose to chart your budget—app, software, or pen and paper—keep these words-of-wisdom from Shaulis in mind:

“It doesn’t have to be complicated, but you do need to be honest with yourself.”

Make Emergency Savings a Priority

If nothing else, living through a pandemic has taught us all the value of thinking ahead and stocking up. We may never again experience another 2020, but inevitably family members will get sick, jobs will be lost, life happens! Emergency savings not only get families through unexpected hardships, but it also provides some peace of mind daily just knowing such a safety net exists. 

Brown recommends an emergency savings that equals 3-6 months of monthly expenses but says the exact amount varies from family to family. 

“Only consider three months if you have a very stable income (i.e., government, military),” he says. “In most cases, six months is the appropriate amount to have in your emergency savings.”

It is important to note that emergency savings are not the same as your regular savings account. 

“It’s generally best to keep these funds separate from your day-to-day checking and savings accounts,” cautions Shaulis. “I think we all know how that money has a mysterious way of disappearing!” 

She also suggests a regular review of your insurance policies (life, disability, property) since “they are meant to help you mitigate risk as well in emergencies.”

Pay Yourself First

Pay Yourself First is a concept that simply involves paying your savings and investment accounts before anything else. In other words, set aside a certain amount for your future, and then budget your immediate expenses around what is left. 

“Consider the 5-5-10 approach as a starting point. Try to put five percent to savings, five percent to life insurances to protect your family and 10 percent to retirement accounts,” says Shaulis. “These percentages can vary a lot depending on things like your age and the time horizon for your goals but can be a solid ‘pay yourself first’ strategy when starting a budget.”

If you’re not ready to go all-in on Pay Yourself First, at the very least contribute to your savings. 

“Save on purpose—always be saving!” says Brown. “If it is $25, start saving in a place you will not touch. This helps you to ensure you are living within your means and preparing for the future.  Make saving automatic, and increase the amount saved quarterly.”

Live Within Your Means (But Still Enjoy Luxuries) 

Part of smart financial planning is to plan for all expected expenses, including the fun ones and not just monthly bills. Brown says it is possible to enjoy luxuries with a little planning. 

“I’ve often said to my family and clients ‘Christmas, birthdays and anniversaries happen at the same time each year, so these are not unexpected expenses,’” says Brown. “Save ahead for major purchases and expenses.”

Be Wise About Debt

Acquiring some debt is unavoidable for most families. But too much debt can weigh families down and lead to major financial problems, including damaged credit and lost assets. 

“Taking on debt can be inevitable but it shouldn’t be permanent,” says Brown, who says in his home, taking on debt is a family matter. “We make it a family decision to go into debt and we make it a family goal to eliminate it as quickly as possible.”

For families who find that their debt continues to grow despite making regular payments toward reducing it, Shaulis suggests managing spending habits by getting a formal financial plan done. A financial planner has many expert tips and tools at their disposal to get their clients on the path to eliminating their debt. 

“One technique is to try to pay off your high-interest debt first,” says Shaulis. “This may save you more money over the long haul because you should be paying less interest overall. Once you have a debt paid off, reallocate that payment to the next highest interest debt and so on. This is called the snowball technique.”

Think About Investing

Some families may choose to stick with the safer route—traditional savings—but for those willing to risk it, investing may be a viable option. 

“Depending on your personal income and situation, next consider using a Roth IRA, employer retirement plan or traditional IRA,” suggests Brown. “Within these accounts, you will have access to stock, bonds, mutual funds.

So many pros and cons come along with both saving and investing. On the one hand, saving seems more practical because the dollar amount in your account will never decrease—a risk that comes with investing. However, the value of that dollar amount in savings could decrease over time because of inflation. 

“Your financial advisor/fiduciary can help you decipher how aggressive or conservative to be with your investments, based on your specific financial goals, time horizon and risk tolerance,” says Shaulis. 

3 Books to Introduce Teens to Personal Finance

Rich Dad, Poor Dad: For Teens – The Secrets About Money That You Don’t Learn in School by Robert T. Kyosaki

This is a think-outside-the-box read that introduces younger and older teens to the idea of making your money work for you. The author introduces financial concepts such as cash flow, liabilities and assets, passive income, and exploring entrepreneurship as opposed to more traditional career routes. There is also a section on ways teens can make money. 

Why Didn’t They Teach Me This in School? 99 Personal Money Management Principles to Live by Carl Siegel 

Originally intended only for the author’s children, this is a quick, easy-to-read guide filled with practical (sometimes unorthodox) financial advice based on personal experience. The book contains 99 principles broken down into sections that cover topics like budgeting and saving, investing and debt. 

The Infographic Guide to Personal Finance: A Visual Reference for Everything You Need to Know by Michelle Cagan, CPA

For the student who is more of a visual learner, author and CPA Cagan delivers bite-sized bits of important information using colorful and eye-catching graphics and charts. Topics include Choosing a Bank, Health Insurance and What Not to Buy. 

Rhiannon Ellis
Rhiannon Ellis is a freelance writer and author, a fitness instructor, and owner of Impact Fitness. She resides with her two children in her native Williamsburg and on their mini-farm in Charles City.

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