Managing a family budget can feel overwhelming. There are so many different things to think about. You have your basic expenses (which are higher now that you’ve got a family), your debt, your future, and your children’s future. But the good news is that it’s not as overwhelming as it sounds. And a large part of the challenge could be just a few bad habits you might not even know you’re making. Here are 6 common mistakes you should stop making immediately:
#1 Spending too much money on a house
There are three ways that a family will spend too much money on a house. And many families make all 3 mistakes at once which means they end up spending way more on a house than they should be:
- Buying more house than you can afford. Your monthly payment should not be more than 30% of your total family income. That’s the budget you have to work with. Work backwards from there to determine the price range you are looking at when looking for a home.
- Paying the minimum on your mortgage. By paying just $100 more than the minimum each month, you could not only shave years off of the mortgage and save thousands of dollars in interest. If you can’t afford an extra $100, anything above the minimum will help. You can also put your tax refund toward your mortgage each year.
- Buying too early. New families are usually pretty eager to buy a house and “start their lives.” But buying a home before you have saved up enough to pay a solid down payment could mean you end up with a terrible mortgage and even worse terms. Patience is key. Wait until you can actually afford to get a good mortgage.
#2 Grocery shopping without a meal plan
Grocery shopping can be a huge source of waste in your budget. A grocery list can help. But the best way to save money here is by planning your meals in advance. Then, you make a grocery list with just the ingredients you need for the meals you will eat. Then, you buy just those ingredients in the amount that you need.
This will eliminate food waste and save you from buying food you think you’ll eat but never do. You only buy food that you will be eating.
And it actually doesn’t take that much extra effort. You don’t have to plan elaborate, difficult meals. You can plan meals that you already usually make. Just make a concrete plan for the week and stick to it.
Read More: How to Create a Menu Plan
#3 Not having a detailed debt management plan in place
First of all, not all debts are equal. Rather than scrambling to pay off all debts at once, prioritize your debts and knock them off one at a time (while still making minimum payments on the rest). Here’s a basic framework for clearing through your debts effectively:
- List out of all your debts in order of size and interest rate. That means the smallest balance with the highest interest rate goes at the top of your list. The largest balance with the lowest interest rate goes at the bottom.
- Focus on paying as much as you can to the debt at the top of the list while making just the minimum payments to all the rest.
- When the debt at the top of your list is paid off, move on to the next one.
In the meantime, you need to balance all of your other financial needs as well. That includes an emergency fund, retirement savings, college, and other savings. Yes, there’s a lot to think about. But that’s why you really need to have a detailed and realistic plan in place for your money so that it doesn’t just disappear without you knowing where it went.
#4 Prioritizing College over Retirement
If you don’t have an adequate retirement savings, the burden is likely going to fall on your kids to take care of you. So you aren’t being selfish by prioritizing retirement over college savings. Being self-sustainable in your golden years is just as beneficial to your children as it is to you.
If you’re still not convinced, consider the fact that any money you keep in an IRA, 401k or any other retirement account doesn’t get counted when your child applies for financial aid. That means that the more money you stash away in a retirement fund, the less income you have to report for financial aid. This will increase their chances of qualifying for financial aid (as well as increase the amount they qualify for).
You don’t have to stash all of your savings into a retirement fund. An ideal is 15% of your income (but it should be at least 10%). Once you’ve hit that target, you can put a portion of your remaining income toward a college fund.
#5 Not Budgeting Every Dollar
With so many moving parts, a family budget needs to be planned carefully. Every dollar of your income needs a “job.” That is, before the month starts, sit down with your partner and decide exactly where your money is going to go next month. That doesn’t mean you can’t buy anything fun. It just means you need to plan for it and make sure fun doesn’t ruin your financial stability.
Read more: How to Create a Budget That Actually Works
#6 Living a Borrowed Lifestyle
The pressure to live a certain lifestyle gets even worse when kids are in the picture. As a parent, you can feel a lot of guilt for not buying the newest and the best of everything for your child. But the fact is that they don’t need most of it. A baby who can’t walk doesn’t need brand name shoes. In fact, they don’t actually need shoes at all if we’re being honest.
Buying expensive clothes for a kid who will grow out of them in a matter of months is a huge waste of money. Your child will be just as happy and healthy with secondhand clothes, toys, and other products. Don’t go into debt trying to live a lifestyle that you not only can’t afford but don’t even need.
There’s a theme running through each of these bad habits and that’s a lack of planning. As a single individual, you could probably get away with a certain amount of careless spending habits. You had enough wiggle room in your budget that you didn’t fall into financial ruin by splurging on a night out. However, once you’ve got a family to care for, it’s time to get serious. You need to plan out where every dollar is going to go so that you can make sure you are accomplishing all of your financial goals.