Last Updated on December 24, 2020 by Matt Schmidt
There’s a lot to think about as you start to plan a family. It’s not just baby names and parenting styles you need to consider, but also how you’ll afford everything your family needs. Raising a family is expensive and if you want to give your children — and yourself — the best future possible (and who doesn’t?), you need to get your finances in order as quickly as possible.
Planning your family’s future can be pretty overwhelming. There are a lot of financial terms and topics you might not know much about, but nonetheless, you need to tackle them if you’re going to be the best parent possible. Everybody has different financial needs and objectives, but we do what to touch on so five simple steps to take.
Merge your finances
Now that you’re getting married, it’s time to start viewing your finances as a unit. Whether you combine finances, keep them separate, or use a combination of the two, it’s important to work toward mutual financial goals as a couple.
Part of merging finances is deciding how you’ll handle expenses related to your growing family, particularly childcare. Deciding whether to pay for childcare or have one parent leave the workforce isn’t an easy decision, so be sure to consider all of the pros and cons and account for the lost income in your retirement savings.
Save for retirement
Retirement savings is a must-have, even though you might be thinking that you and your partner both leaving the workforce is a long way off. In fact, the earlier you begin setting aside money for your golden years, the better off you’ll be. Those funds will have time to accrue more interest, and you’ll be in a better position to weather whatever storms come your way. Even a small amount applied to your nest egg will make a huge difference later on, so even if you don’t have a lot to set aside yet, start contributing to your retirement account(s) now.
You can choose from a wide range of tax deferred accounts such as a 401K, IRA, Roth IRA and many others. Work with your financial professional or tax professional to determine which account is best for your situation. Bottom line is to start saving when you are young!
Buy life insurance
This is also the best time to buy life insurance. Not only do you have a spouse to protect in the event of your death, but soon you’ll have a family’s future to insure as well. Plus, as NerdWallet explains, life insurance is cheapest when you’re young! Most people use life insurance to replace lost income, pay off debts, and provide their family with a financial cushion in the event of their passing. Life insurance is one of the most important financial products a person can ever purchase to protect their loved ones.
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Life insurance can also be used to pay for a funeral — something you’ll want to start planning for now, as this expense can easily come to $10,000. If you don’t plan ahead, your family could be forced to fundraise or take out a loan just for the opportunity to pay their respects to you and mourn your loss. Final expense insurance, or burial insurance is an easy product to qualify for. Even people in below average health can still qualify for guaranteed acceptance policies.
Buy disability insurance
Parents should also buy disability insurance, either privately or through an employer-sponsored plan. Disability insurance covers you if you’re unable to work due to a short- or long-term disability. InHerSight points out that this coverage can even insure you during a complicated pregnancy or maternity leave.
Just imagine not being able to work again, and not being able to produce a ‘paycheck’ for your family. How would you meet your financial obligations? Disability insurance is another very important product to have in place and be a part of your financial plan. We never know what the future may bring.
Save for your first home
Now that you have the essentials covered, it’s time to set financial goals for your family. You probably already have aspirations of getting a higher-paying job and a more family-friendly vehicle, but for most young parents, buying a home is their biggest financial goal. Unfortunately, with the rising price of homes, the prospect can be daunting.
There’s one secret that could get young couples into homes sooner than they think: You don’t need 20 percent for a down payment. In fact, some loans let you put zero money down, but you’ll get better loan terms with a modest down payment. For a conventional mortgage, aim to put at least 5 percent down. Just keep in mind you’ll need to pay private mortgage insurance if you borrow more than 80 percent of your home’s value.
Plan for college
Saving for their children’s education is a goal many parents share, but figuring out where to fit college savings into your budget can be difficult. If you have discretionary income after paying for necessities, building an emergency fund, and saving for retirement, use it wisely by establishing a tax-advantaged savings plan such as a 529 plan. Then, ask grandparents, aunts, uncles, and family friends to contribute for birthdays and holidays.
Every dollar will go a long way. Just like with your retirement accounts, start these savings plans when your child is young. 18 years will go fast, and you’ll be glad you started these accounts out when your children were young.
There’s a lot to do and buy when starting a family, but before worrying about car seats and strollers, make sure you’ve taken care of these financial to-dos. With your finances in order, you can rest assured knowing that your growing family has everything it needs to thrive.
Author Bio: This article was written by Lisa Walker of Neighborhood Sprout.