Kathryn B. Hauer, CERTIFIED FINANCIAL PLANNER (TM)
Hi! My heart goes out to you and your husband – this is such a tough time for young people to make it financially. My daughter is just your age, and I completely sympathize with you on how hard it is to make a go of things financially. I imagine that most of the time you try not to think too much about the current state of your finances but that the worry pops up randomly and just turns your stomach when it comes.
Let’s talk about some of the things you guys can do to feel more in control and start climbing out of debt. First, it might be worth taking a snapshot of your total financial picture – making a “financial plan.” This action will probably make you feel even more nervous and upset, but it is essential to see where you are right now. Financial planning entails the concept of complete financial health including:
· Managing cash flow
· Managing debt
· Planning for home purchases, kids’ college and other long term goals
· Insurance/ Risk Management
· Minimizing taxes legally
· Retirement planning
· Investing to grow your wealth
· Estate planning (including wills and trusts)
I am not sure what kind of debt you have (credit card, student loan, car payments, mortgage) or how far in debt you are, so I can’t really address specifics for you. What I will do here is write out some general money management advice, and then you can write again for more specific ideas if want to. If you are going to have student loans to pay back. If so, you’ll want to make sure you pay them regularly and on time. Also, if you have credit card debt you want to work to pay that debt down, avoid incurring new debt, and try to pay off your credit cards in full every month.
Here are some steps I recommend to help plan your finances:
1. Make a budget if you don’t have one. I am not sure if you already have a budget, but the first thing today is create a simple budget so you can see what money comes in and what goes out. Steel yourself because it may be very depressing, but it's an essential step. Here are three free sources for budget worksheets from Navy Federal Credit Union, America Saves, and the Federal Trade Commission.
2. Make sure you have an “emergency fund” – 3 of 6 months of money in a liquid (savings or checking) account.
3. You are probably going to have to change your lifestyle somewhat to cut spending to get out and stay out of debt. You could also maybe freelance or take second jobs to increase your income.
4. Also, if you have credit card debt you want to work to pay that debt down, avoid incurring new debt, and try to pay off your credit cards in full every month.
5. Both of you will want to start contributing to your company 401(k) plan (if one is offered) when you can, especially if your company matches any of your contribution. That’s like getting extra salary! In fact, if your company does match contributions, you’d want to put enough money in the 401(k) to max out that match when you get to the point that you are able to.
6. When you get to the point that your debt is manageable, you can start investing the extra money you aren’t spending. You can use a do-it-yourself approach (such as an ETrade or Scottrade account) or hire an investment advisor to help.
7. Evaluate your insurance needs – life, auto, health, renters etc. to make sure the assets you have gained are safe.
8. Make sure you have a will and that your insurance beneficiaries are up to date.
These steps are just a start. If you are interested in finances and money management there is lots of good information out there to help you do it yourself. If you want to pay a professional for advice, consider hiring a CFP® (look for them on the CFP Board website) to help you create and follow a comprehensive financial plan. The cost may seem to be too much, but if you are having trouble making changes yourself, the expense could be worthwhile. You might ask for something like that as a holiday present from your parents or your husband's parents.
Good luck to you! This is a really hard time, but just asking the question and beginning to think about making changes in your financial life is a good first step. And you have your husband to commiserate and work with to make changes. Things will work out! Thank you for writing and please write again if you would like more advice.
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