Having kids means the end of your carefree days — and we’re not just talking about late nights on the town. Starting a family is also the time that people have to get serious about their finances. Whether you’re expecting your first child and preparing the nursery or already have a houseful, follow these steps to make a financial plan that works for your family.
Step 1: Assess Your Financial Health
When asked why they don’t budget, 24 percent of people say it’s because they’re bad at sticking to a budget. Others are too afraid to look at their bank account. Sticking your head in the sand only leads to trouble when it comes to money, so stop avoiding your finances and finally get serious about budgeting.
It’s easy to underestimate how much you spend on things like subscription services. Take a look at your assets and liabilities to help you determine where you’re at financially. These include your bank accounts, investments, and debts. Another part of determining your net worth is getting an accurate assessment of your home’s value. An online tool can help with this — it pulls data from recently sold homes in your neighborhood in order to yield a more accurate figure.
As you’re going through your assets and liabilities, ask yourself the following questions: Do you have enough money to cover an emergency bill? Are you on track for retirement savings? Are you left with a comfortable financial cushion at the end of the month, or are you operating at a loss?
Step 2: Define Your Goals
Now that you have answers to those questions, it’s time to set financial goals for yourself, like:
An emergency fund: Are you among the 40 percent of U.S. families that couldn’t cover an unexpected $400 bill? Make saving an emergency fund big enough to cover three months of expenses your first financial goal.
Saving for retirement: If your employer offers a 401(k) match, that’s the best way to save for retirement. However, even people without employer-sponsored savings plans can save for retirement via IRAs, Solo 401(k)s, and other savings plans.
Paying off debt: Some debt, like a mortgage, is to be expected. However, if credit card, student loan, or other debt payments are keeping you from meeting financial goals, make paying them off a priority.
Saving for your kids’ college: Most parents hope to put their kids through school, but with college costs rising, it’s not a reality for many families. However, if you’re on track for retirement and have funds to spare, 529 plans, Coverdell Education Savings Accounts, and Roth IRAs are ideal for your college fund.
Step 3: Set a Realistic Budget
Are you saving enough money to meet your financial goals? If not, you need to adjust your budget. The easiest place to cut back is nonessential spending like entertainment, dining out, and shopping. If that’s not enough, look for ways to save in your core spending categories. Can you cut your grocery bill, find a better price on your cell phone or internet service, or even move to a lower-cost home?
Step 4: Plan for the Future
There’s one more big step parents need to take for their family’s financial security: planning for the possibility that one day you might not be around to care for your kids. While no one likes to think about something happening to them or their spouse, it’s important to plan for worst-case scenarios so your family is protected no matter what.
Every parent should write or update their will after having kids. This is where you’ll name guardians for your kids and say how you want your assets distributed after you die. You should also think about getting a life insurance policy, which is the best way to leave money to your spouse and children so they can cover funeral costs and lost income if the worst happens.
With these steps complete, your family is on the path to financial security. But you’re not done yet! Revisit your budget and financial goals every year to make sure they’re still right for your family situation and that you’re still on track toward your family’s goals.
About the Author
Sara Bailey is a mom of two and a widow who operates the blog TheWidow.net. She lost her husband by her 41st birthday and is a grieving single mom raising a son and daughter on her own. With each passing day, she gets a little stronger, and life gets a little easier.
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