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Some say having a child is priceless. Others say it costs up to $250,000 (to raise them from birth through age 17). In any event, having children is definitely a game-changer when it comes to managing your family’s finances. What worked when it was just the two of you will have to be scrutinized or even scratched. Planning and managing your family’s finances now that junior has arrived will take some time—but is more important than ever.
Here are seven steps all young families should take to secure their finances.
Step 1: Create a budget.
You can’t manage your money if you don’t have a plan. A budget is simply a plan for how to spend and save the money you have coming into your household. Record your income and expenses each month and create a budget for the following month based on that data. Made adjustments where necessary, both in your planning and in your spending to give you a realistic overview of where your money is going. (For help with creating a budget, click here.)
Step 2: Buy only what you can afford…or less.
Spending and debt are as slippery slope. While many young families look to purchase larger homes or cars, you don’t want to take on payments that stretch the budget you just created. Do you really need that minivan right now? The less you spend the less stressed you’ll be—freeing up your time and energy to focus on your family.
Step 3: Establish an emergency fund.
As parents, you’re familiar with the idea of expecting the unexpected. You never know what is around the corner. A looming medical expense or change in your job situation could be all it takes to push many families over the edge. Have enough in the bank to get you through three to six months’ worth of expenses—just in case.
Step 4: Save for college.
It’s never too early to start saving for your child’s college expenses. Set aside a little bit each month—even just $50 a month can add up over time. Take advantage of the tax-friendly options available that can help you save, such as educational savings accounts or a 529 plan. Just be sure you’re not putting all your savings into the college fund—you need to think about your future too, which leads us to Step 5.
Step 5: Save for retirement.
It may seem selfish, but always save for you first. The popular advice you may have heard is true: your child can always take out loans for college, but you can’t for retirement. Set up an automatic paycheck withdrawal to funnel funds directly into a retirement account and be sure to take advantage of any retirement savings options available to you at work. Whatever you decide to do, just be sure to begin saving now.
Step 6: Plan for the future.
What happens to your family if something happens to you? Now more than ever it’s important to think about what type of insurance you should have (life and disability, at least), draw up a will and establish a trust fund. Insurance can help support your family if you suddenly can’t. And a will and trust fund can help make sure your children are taken care of should something happen to you and your partner.
Step 7: Consider professional help.
Does all of this sound overwhelming? Not to worry, there are plenty of qualified professionals out there who can help you every step of the way. Talk with your accountant, attorney, financial advisor or other trusted consultant. You can get as little or as much help as you need, or as fits your budget.
Following these steps will help make sure your family’s finances are on a firm footing. And, as an added bonus, by actively managing your money, you’re also teaching your children good financial habits!
This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.
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