While you’re adjusting to parenthood and dealing with the everyday responsibilities of feeding and nap times, you may not be focused on future milestones in your child’s life. Keeping your child fed, clothed, healthy and happy is obviously top priority. However, when it comes to the big picture, there’s another important factor that plays into the well-being of your whole family: finances.
All parents want their family to be financially secure—both in the present and in the future. Being financially secure isn’t just about taking care of your family; it can positively affect your physical and mental health as well. But if you’re new to financial planning, it can seem overwhelming and hard to know where to start. The good news is that no matter where you are financially, you can take steps now to build a bright future for your family. Here are some practical tips to help you begin:
Explore estate planning and insurance.
The first thing to consider is getting an estate plan in order. There’s a lot that goes into this process, but it’s essential for your family’s financial future. Find a trustworthy attorney and discuss factors like:
- Making a will
- Making health care directives
- Setting up a power of attorney
- Naming a beneficiary for all your financial accounts
Also, consider purchasing life insurance, which can be especially helpful when you have young children, high debt, and/or considerable estate taxes. In the event that you pass away, life insurance kicks in to aid your survivors with funeral expenses, loans and debts, lost income and many other expenses. Use an online calculator and enter the amount of coverage you’re looking for to estimate your policy’s costs.
Next, consider the costs of your car insurance. Now that you have a family, you may prefer to get a full-coverage policy so you know they’ll be protected. While full coverage is costlier, that doesn’t mean you can’t save. For example, many insurance companies offer discounts if your car has a wheel lock or electronic keys, you’ve never been in an accident, or you’ve been insured by the company for a long period of time. Saving on car insurance will make it easier to plan for your financial future.
Start an emergency fund immediately.
Whatever your current financial situation, starting an emergency fund should be one of the first things you do in your financial planning. An emergency fund will help you pay for unexpected events, such as a major home repair, car repair or medical expense. Set a goal to save $1,000 cash. From there, start building your fund until it reaches enough to cover three to six months of living expenses.
Tackle outstanding debts.
There are some kinds of debt that you may need to pay off over a considerable amount of time, such as a mortgage and student loans. But when it comes to other kinds, like car loans and credit card payments, you will need to pay them off as soon as possible. Sit down, and figure out exactly what you owe and exactly what you bring in each month. Then, consider your other monthly expenses. Once you have the numbers on paper, you will be able to see where you can cut spending. Moreover, consider any ways you can bring in additional income, any items you can sell, and so on.
Save for a home, retirement, and college.
Once you’ve paid off any debts and saved up enough in your emergency fund, you may want to consider buying a home. Buying real estate can often be a profitable investment, but you want to be sure that you don’t overspend. To determine your budget for buying a home, estimate your yearly income, monthly expenses, and how much you’re able to put down. When it comes to shopping for mortgages, look to see if you qualify for a conventional mortgage. Conventional loans offer home buyers lower and flexible term options, and you won’t have to pay for mortgage insurance if you make a down payment of 20 percent.
It’s never too early to start saving for retirement. Get with a trustworthy financial advisor to discuss investment options, such as IRAs (e.g., Roth, traditional), and stocks and bonds. Also, if your employer offers to match your 401K, opt for the highest percentage possible. For instance, if your employer will match up to half of 6% of your income (pre-tax), invest the full 6% to ensure 9% is invested.
You also want to think about your child’s college tuition and expenses. Set up a 529 savings account and begin automatically depositing each month. These plans have solid tax benefits, so the earlier you start saving, the more money you will have when your child turns 18.
Finances is not always the most fun topic to think about, but it’s essential to securing a bright future for your family. Remember to look into your estate planning and life insurance options. Set up an emergency fund, start conquering your debt, and start saving for retirement and college now. The more thought and effort you put into your financial security today, the better off your family will be tomorrow.