Financial planning can be intimidating, to be sure, but it’s necessary if you want to avoid problems in the future. Parents have an even harder task of organizing various child care expenses and financial savings for the future of their families. To provide for your family as it grows and gains new members, get your financials in order now. Here are some quick tips to get you started!
Calculate Your Net Worth
One of the most important things you can do when you’re planning your finances is to calculate your net worth. This is the total worth of all the things you own, including your savings accounts and investment accounts. You’ll also have to figure out the value of your home while calculating how much each of your assets is worth. It’s good to know your net worth so you can track your financial progress. If you make a poor financial decision, your net worth goes down. If you budget well and save, your net worth goes up. For example, paying off debt will temporarily decrease net worth but increase it in the long term because you won’t have to contribute as much money toward interest.
Develop a Budget
According to MassMutual, raising a child for 18 years in the U.S. costs about $245,000 for a middle-income family. When budgeting, be sure to account for all of your baby’s basic needs, including diapers, food, and clothing. You can save a lot of money by avoiding child care expenses and having one parent stay at home. However, this also means you’ll lose a second income source. It’s also important to consider that you may miss out on promotions if you stay home from work during the first few years of your child’s life.
Start Saving Early
Parents have two big things to save for: their child’s education and their own retirement. Start saving for your child’s college fund as soon as you can. Short-term savings accounts are low-interest but may be the best option if you think you’ll need the money soon. Long-term accounts will give your money an opportunity to grow. Ideally, use a combination of low-risk, steady-earning accounts and higher-risk stocks and bonds. Importantly, don’t save so much for your child’s education that your own financial well-being suffers. Make sure you have enough to save for your own retirement.
Be Prepared for Unexpected Expenses
With parenting, there are tons of unexpected problems, big and small, that can take a toll on your financial resources. For example, you may have to take time off work for your child’s sick days or invest a large sum of money into unexpected house repairs. It’s advisable to have a good emergency fund in place, mostly consisting of liquid assets, that can cover at least three months of your family’s living expenses.
Protect Your Child’s Future
Bankrate highly recommends life insurance for anyone with children—even if you’re a new, young parent in good health. Your policy should provide enough money for your family to live off and pay off any existing debt. Importantly, get insurance in other areas to cover large, unexpected emergency expenses. For example, make sure every member of your family has adequate health insurance. Renter’s or home insurance coverage can also come in handy and save you a lot of money should something happen to your home.
Do Your Estate Planning
Young parents usually haven’t done much estate planning. In fact, only 36 percent of parents have the necessary documents in place in case anything happens to them. A will is the most basic document that every parent should have. In it, you can establish who will take over as your child’s legal guardian. Also, be sure to document what should happen with your life insurance proceeds and assets until your children are at a mature enough age to handle the money responsibly.
Don’t let expenses and financial responsibility stop you from having children. The truth is that a lot of parents are not completely financially secure when they have kids. Planning to meet the financial needs of your children as well as yourself is all part of the parenting journey.
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