How to start developing savings habits for your family

When you start a family you have a lot to consider, especially financially. Now that it is no longer just you, the pressure is on to make the right financial decisions. This decisions should be beneficial and for the best interest of you and your family.

Which is why it’s no surprise that, when creating a new family budget, retirement savings falls through the cracks. In fact, many young families experience difficulty planning for their post-working-life future. Middle class families today are earning more than double what families twenty years ago earned. Still, this doesn’t mean the middle class is out of the woods yet – particularly young families.

The sad truth is that, after rent, medical expenses and other necessary costs, young middle-class families are barely breaking even. This is all part of a new phenomenon called “Middle Class Poor”, essentially a new form of living paycheck to paycheck.

This growing portion of the American population aren’t poor – not by a long shot. In fact, they are income-rich; however, they have created almost no funds for emergencies. And when it comes to retirement? They aren’t even close to being prepared to exit the workforce.

The median American household income is roughly $55,000 which is nearly double what it was in the 1980s. However, despite a high median household income, these Americans find themselves asset-poor. Roughly a quarter of middle class earners, between the ages of 40 and 55, own less than $20,000 in financial assets.

To give you a better understanding: financial assets include anything that isn’t a business, car or home. Essentially, this means that all savings in these households – including retirement – adds up to less than $20,000.

The Frightening Truth

You can blame a recovering economy all you want, but the truth is that even years after the economy works to right itself, these individuals may be leaving it more susceptible to another downturn.

A large reason for this is that 401(k) savings displaced additional forms of saving. This means that most Americans don’t have much to save after contributing to their retirement accounts. This puts the middle class in two boats: the ones who choose to save for retirement and individuals who don’t.

The former may be worse off than the latter, as it turns out. Particularly young families.

Starting a family is never easy and necessary expenses become different after you’ve had a child. These include medical costs and costs for schooling. Combine these expenses with the rise in rent across the United States and relatively stagnant employee wages. This leaves very little financial wiggle room for emergencies.

However, emergency funds are not just necessary for new families.

Those individuals who find themselves saving for retirement may be forced to dip into their 401(k) accounts savings early. This may happen because they might need help to pay medical and emergency costs. The best budget in the world doesn’t work if you don’t have any money, and these individuals tend to embody that model.

As we’ve belabored in earlier posts: dipping into your 401(k) account is never a good idea. If you aren’t saving a lot of money, you will be paying taxes on your early withdrawals. The amount you withdraw is money you won’t be able to get back. 

You should always have another form of savings for emergencies.

Here’s a sad fact to give you an idea of the saving habit of most American households: most middle class earners wouldn’t be able to come up with even $2,000 if necessary, according to a report published by Brookings, measuring household financial fragility.

The financial fragility of the middle class is even more frightening when you consider the amount of debt households incur. For student loan debt alone, the average household owes roughly $30,000. That is nearly twice as much debt as financial assets per household. And the debt gets even bigger when you factor in housing, credit cards and transportation.

In a consumer-driven society like ours, high levels of debt are the norm. They are a necessary evil to keep the economy stable.

One way to combat these statistics is to change our focus from spending to creating a building. This way, Americans will be contributing to the economy while focusing on creating a stable mode of consumer spending.

Bottom Line

You don’t have to be stuck between a rock and a hard place when it comes to saving for your future or emergencies. For young families, especially, getting finances under control early on is a key to success. If something were to happen to you tomorrow, would you have enough money to pay for medical and necessary expenses?

If you panic, just take a deep breath. It isn’t too late to develop a solid savings plan. Start by calling one of our financial advisers to see how we can help you get your saving on track. You should be able to protect yourself financially if the unexpected arise. Our advisers can teach you the fundamentals of money management that will have you on track in no time.

Remember: every step you take helps your financial future.