As you already know, parenting comes with a host of new responsibilities that you probably never thought about before you had kids. One of these is making sure your family is financially stable and prepared for the future. But, where do you even start? Getting your finances in order can be overwhelming if you’re a new parent. Here’s how to do it without pulling your hair out.
1. Build Up Your Emergency Funds Now
The first thing to know about financial planning is that you should always be prepared for the worst. You never know when illness, an accident, or the loss of a job will suddenly threaten the income that you rely on. According to Forbes, parents should build up their emergency fund before putting any money away for their children’s education. This fund will help you pay for your family’s living costs in the event of unexpected chaos or difficult times. Your emergency fund should consist of about three months of expenses for a double-income household and six months of basic living costs for a single-income family.
2. Lose as Much Debt as Possible
Whether caused by schooling, medical bills or buying a new home, about 80 percent of American adults are in debt. Throw a costly baby into the mix and it becomes difficult to manage monthly payments. This is why it’s important to pay off debt as soon as possible. Of course, this may involve making cuts to your budget or refinancing your debts for lower monthly payments. Wise Bread stresses the importance of being cost-effective with your baby supplies so your new child won’t add to your debt burden. Try to fit baby supplies such as diapers and baby food into your regular grocery budget by cutting out some of the more expensive foods you normally buy for yourself.
3. Insure the Future of Your Family
Having insurance is an important part of protecting you and your family from extensive debt and financial hardship. Most people should have health insurance, car insurance, and homeowner’s or renter’s insurance. When you become a parent, life insurance and disability insurance become important as well. If you have a family who is dependent on your salary, life insurance can protect them if something happens to you. This should cover things such as your mortgage payments, credit cards, funeral expenses, child care and the cost of college education for your children. Disability coverage also will help pay for daily expenses in the event that you can no longer work.
4. Plan for Your Own Retirement and Funeral
As a parent, you probably want to provide for your children over yourself. However, it’s important that you put your retirement savings ahead of your kid’s college fund. If you don’t, it’s likely that your children with end up having to support you later in life. It can actually cost your kid much more to care for you in old age than it would cost them to pay for their own college. Plus, there are student loans, scholarships and bursaries available to help them out. On the other hand, there is little available assistance to help you fund your retirement.
Part of retirement planning involves calculating your net worth. This will help you determine if you’ll have enough assets to support you through retirement. You’ll need to figure out the value of your home when calculating how much your assets are worth. This can be done by using online tools or talking to a real estate agent. It’s also important to reduce your liabilities (or debts) before retirement so that you can afford your normal monthly expenses without an income.
Additionally, your children could become burdened with unexpected expenses if you don’t plan for your funeral ahead of time. The costs can add up to an average of $7,000 to $9,000 and primarily depend on whether you wish to be buried or cremated. A good way to plan is to know the costs of each item, decide which ones are most important to you, and then gather estimates from several funeral homes. Funeral planning is a difficult topic to discuss, but making preparations in advance can help your family save accordingly and can lessen some of the stress.
Once you have your finances organized and planned for the future, you’ll be able to rest easy knowing your family is prepared for anything. Now, you can work on instilling good financial habits in your kids as well. Together, your family can learn how to make wise financial decisions that will provide lifetime stability and peace of mind.