If you’re a young family, you’re no doubt busier than ever. You’ve got a thousand things on your mind, so the last thing you’re thinking about is your financial situation. The problem is that young families often make financial mistakes. Here’s why your family finances might be about to blow up.
You’ve Got No Family Safety Net
Jane Nowak is a financial planner from Georgia. She’s had significant experience with families who go paycheck to paycheck and have no extra savings. She understands that saving can be hard when wages are so low. But she insists that families must save if they’re going to have any financial safety net to deal with unexpected expenses. The current recommendation is that families put aside at least $25 a month. Over time that money will grow into something substantial that can be used for home repair or medical expenses.
Your Relationship With Your Spouse Is On Life Support
It’s hard to make long term decisions about your family’s finances if your marriage is constantly on the rocks. You want to commit to a future, but you’re worried it’ll all end in disaster.
The problem is that divorce can end in disaster. In fact, with alimony and child support, it is one of the leading causes of bankruptcy. Find simple yet effective divorce lawyers and consult with them about your options.
You Overlook Tax Savings
Right now, families are entitled to some fairly hefty tax breaks if they have children. Currently, there’s a $3950 per child exemption on income tax. And there’s also some lesser-known tax breaks that could have a significant impact on your family’s financial security.
Take the child tax credit, for instance. This can be as much as $1,000, depending on your income. Or what about the dependent care credit? This is designed to cover 35 percent of the cost of daycare in the US.
You can also apply for what’s known as an adoption tax credit. This will pay up to $13,000 to cover travel costs and court fees.
Open A Savings Account For Your Kids
The cost of education at the moment is enormous. Students are regularly finding themselves in upwards of $100,000 of debt. If current trends continue, that debt mountain is likely to get even worse. Colleges are set to increase their fees further in a never-ending game of chicken and egg.
What’s more, college debt is tough to pay off. New laws mean that debt cannot be forgiven, even through bankruptcy. This means that many students will be condemned to a life of debt servitude if they cannot pay their way. Going to college in the future will be a huge financial risk.
As a result, families need to start saving now for future education expenses. You can put your extra dollars into a 529 college saving plan. The interest earned in these accounts is tax-free, but it must go towards a college education. Depending on the state in which you live, you may be able to apply for up-front deductions.
***Image thanks to Johanna Hardell***