By Josh Wilson, a Millennial working to embrace his wife, family, and finances. Josh would like to be the next great thought leader in the personal finance industry.
If you are planning to start a family, brace yourself: The average cost of raising a child born today is nearly a quarter million dollars depending on where you live — not counting inflation! And that doesn’t include the cost of college, which averages about $70,000 considering all expenses. While raising children takes priority in any family’s budget, parents also have to be able to save for retirement and account for unexpected expenses along the way.
So, what’s a new family to do? Assuming you have already done the smart thing and created a family budget, you may still have to make some sacrifices to ensure your family is well taken care of and you don’t retire as a pauper. However, sacrifices don’t have to be painful. It often takes a small sacrifice to develop a good habit; but once it becomes a habit, you will be happier and better off in the long run. Here are two sacrifices that can make or break you new family budget.
Sacrifice #1: Live Beneath Your Means
If you and your spouse went to college, you both know what it’s like to delay gratification and get by on limited funds. You sacrificed financially to achieve your goal of getting a college degree. The problem is, once people leave college, they tend to pursue the lifestyle they think they deserve, so they manage to spend every extra dollar they have in that pursuit, especially if they have no other purpose.
If you ask most very wealthy families, they will tell you that the key to their financial success was not due to any extraordinary investments they made; rather it was due living beneath their means, which enabled them to make the investments. As a young family just starting out, if your goal is to save enough money for emergencies, a new house, college for the kids or retirement, it is much easier to spend less money than it is to make more money.
Some people consider living a frugal life to be a lifestyle sacrifice – driving used instead of new cars; buying less house or a house in less expensive location; dining out only on special occasions; staycations instead of vacations; shopping at Target for kid’s clothes; buying store brands; forgoing the daily Starbucks coffee; forgoing premium cable channels; generally watching their pennies on every purchase. However, considering the thousands of dollars saved each year – all of which can go towards important family goals – some people look at it as a means to an end.
After all, any happiness derived from spending $100 for a new pair of jeans is only fleeting. That $100 invested in a stock mutual fund for the next 20 years could grow to nearly $400. Which would give you more satisfaction? By the time you want to buy a house or put your child through college, the jeans will be long gone.
The point is, if you have financial goals, now is the time to sacrifice, at least until your earnings increase. Even then, you need to decide what’s more important – the instant but fleeting gratification of an impulse buy or realizing your ambition for a good life, the rest of your life.
Sacrifice #2: Put Your Credit Cards on Ice
One of the main reasons people use credit cards is to purchase things they can’t otherwise pay for with cash. Credit card purchases are easily rationalized because, even though you don’t have the cash to pay for something, it might only require a few months of payments to cover it. But then another purchase is layered on top of that and another is layered on top of the last one, causing you to stretch your payments out a year or more. The interest costs mount up and, instead of putting the magic of compounding interest to work for you in savings, you are putting it to work for the creditors.
As part of your budget planning, you should vow never to purchase anything with a credit card that can’t be paid off immediately. Using one credit card for emergencies or to purchase regularly budgeting items that are paid off each month makes sense from a personal finance standpoint. Beyond that, your credit card use becomes a slippery slope. It’s best to literally put them on ice by freezing them in tray of water. If you absolutely need to use it, you can it out.
The two dream killers for most families are living beyond their means and debt, which tend to go hand-in-hand. While it may seem like a sacrifice to delay some lifestyle gratification today, what you are really doing is building some good money habits that will serve you and your family well for a lifetime.
Thanks Josh! Josh is a new blogger over at FamilyFaithFinance. He covers a lot of topics about dealing with personal finance with a family of 5! Him and his wife have 3 children and live in New York. Check him out and see all the money lessons him and his wife have learned while raising 3 kids.