Top 5 Financial Priorities for Young Families
Many young families find it hard to make ends meet. You might not be earning your full income yet, inflation has increased the cost of everything, interest rates are currently 20 times higher than they were a mere 21 months ago, and if you add a couple of kids to the mix things can get tight fast. So how do you decide where to put your money? Here are the top 5 financial priorities that all young families need to address.
Protect your income. You and your family will not have any money to spend if you can’t earn it. So what happens if you hurt yourself, become ill, or die prematurely? Life insurance and disability insurance are essential for young families.
Track spending and avoid debt. If you spend more than you earn by using credit cards and lines of credit without a thought, you are digging yourself a big hole. Figure out what your life costs every month and how much money you bring in after tax. Try to ensure that your spending habits do not exceed your after-tax income. If you have debt built up, work some degree of debt repayment into your budget, if possible.
Have a source of emergency funds. It is recommended to have 3 to 6 months’ worth of expenses saved in case of an emergency. Currently, most savings accounts are crediting 3-5% interest, which is not a bad deal for a risk-free investment. Alternatively, you can also leave room on a line of credit if you do not want to tie up cash in a savings account. If you are desperate (not for a vacation or spa – I mean real emergencies) you can access these funds without ruining your financial plan.
Start saving for retirement. It is hard to plan for something so far away, especially if finances are tight, but your retirement won’t take care of itself. A dollar invested at age 25 has a lot more time to earn investment returns than one invested at age 35 or 45. Start as soon as possible, even if it’s a small monthly amount.
Start saving for your kid’s education when they are born. If you want to pay for your kids' education, start their RESP right away to benefit from government grants and tax-deferred investment growth. Their post-secondary education will come fast, and it’s costly, so the earlier you start the better.
Don’t have enough money to cover the top 5? Talk to your ZIW advisor to prioritize your financial needs. The earlier the better!