The first thing you’ll need to do when you start a family is to prepare your finances. Here are 8 financial tips to help you get started.
8 Financial Tips For When You Start A Family: One of the biggest decisions you’ll make in your life will be to start or not to start a family, and your finances will play a major role in that decision.
8 Financial Tips For When You Start A Family
Before taking the plunge, it’s important to consider how your finances will change when you have kids — and what you can do about it before that change happens. A few solid financial moves before you have children can save you both money and stress in the long run. Here are 10 financial tips for when you start a family to get your family ready financially for parenthood.
1) Don’t Go into Debt
Credit cards and lines of credit can be useful for emergencies and large purchases, but it’s important to make sure you’re not accumulating too much debt. It might seem like common sense, but even a small amount of extra money each month can make a big difference in your financial security later on down the road. Make sure you aren’t carrying any balance on your credit card and if you are, pay it off as soon as possible. The less you owe, the more secure your finances will be when you start a family.
It’s easier to plan when you share finances with your partner. Work on a budget together and set financial goals. This will help you better understand where all of your money is going, so you can stick to your budget. If you don’t already have one, create an excel spreadsheet that lists each category in which money is spent, along with any monthly income or expenses in each column (that way you can change things as they fluctuate). Once you have all of your data, add up total income and expenditures to see if there is any extra money left over.
Figure out how much money will be saved for a big trip or for buying a house down payment. Use that figure as one of your financial goals for achieving stability at home. Take advantage of your company’s 401k plan: Many companies offer 401k plans to their employees, but many people aren’t taking advantage of them. Consider contributing more than you are now – it’ll save you a lot of money in taxes later on!
You may also want to consider contributing even more than what your company matches because most companies match contributions up to 4% or 6%. Do some research and talk with your spouse about what would work best for both of you. Find ways to make some extra cash: Another thing many people forget about is side hustles. Even if it’s just $50-100 per month, put that towards your family savings account.
3) Get Health Insurance
This is a no-brainer for obvious reasons, but it’s also a personal decision. Many people choose to forego health insurance before having children because of how expensive coverage can be. It’s often much cheaper to get covered before you have kids, which can give you time to take stock of your finances and prepare for higher expenses.
If your employer offers health insurance through its own plans or through an outside vendor, then it may be wise to go ahead and sign up (no matter what stage of life you are in). Even if your employer doesn’t offer a plan, using COBRA during an extended leave could be something worth exploring. Finally, there are many other options available that can help lower costs while still giving you peace of mind. These include Healthcare Sharing Ministries; Health Savings Accounts; Flexible Spending Accounts; and Prepaid Health Plans.
4) Create an Emergency Fund
Saving up an emergency fund is one of those things that may not be glamorous, but it’s certainly necessary. Having enough money stashed away to cover at least six months of expenses can mean a huge difference in your ability to weather unexpected costs. Try setting up a simple savings account with your bank—one you might use for short-term savings goals like vacations or holiday shopping.
And then automate payments from your checking account into it. Even if you don’t have much room for savings, just putting a little bit away on a regular basis will add up over time and become an integral part of your financial preparedness plan. Plus, once you’ve reached your goal amount, think about investing some of it in ways that could help earn more interest down the road.
5) Make a Budget and Stick to It
It’s hard to believe that there are families out there that don’t track spending and have no idea where their money is going. If you find yourself in that position, then I highly recommend you start budgeting today. The benefits of doing so will quickly become apparent. First, keeping a budget helps you avoid wasting your hard-earned money on things you don’t need or want; it also prevents impulse buys from getting out of control.
Second, a good plan for how you’re going to spend your money will help put your mind at ease; knowing exactly how much you have available for each category allows you to make good choices about how to allocate your funds instead of worrying about whether or not it can be done at all. Third, when you sit down once per month (or more often) to review your expenses against your income, you get a clear picture of what’s working and what isn’t—and if something isn’t working, it gives you time to adjust before things get too far out of hand.
And fourth, having a budget keeps you accountable for every dollar spent because everything must be accounted for. If one area is overspending (or underspending), then adjustments can be made immediately instead of waiting until next month when everything adds up. Finally, making a budget doesn’t mean that every penny spent has to come from an actual budget line item—it just means that every expense should go through some sort of evaluation process before being incurred.
6) Consider Disability Insurance
While you may not be planning on taking a leave of absence for your new baby, many expectant parents end up on bed rest or unable to work for an extended period of time. That’s where disability insurance can come in handy. If you don’t have coverage from your employer, consider a private policy that will pay a percentage of your income if you need to take off.
Typically, policies will pay 60% of your salary when you go out on disability leave and 40% while you’re out and eventually return to work. Disability insurance is worth considering because it’s often overlooked until it’s too late—and it can provide peace of mind in case something goes wrong. Even if you do receive disability benefits through your company, they typically won’t cover everything (and they could even force you into early retirement).
7) Learn about 529 Plans
Saving for college? The 529 plan is a tax-advantaged way to save for college that also offers powerful investment options and matching contributions. But it’s not right for everyone. 529 plans have strict contribution limits, so it can be hard to sock away enough money, especially if you’re saving while you still have a young child at home.
And since withdrawals are taxable, funds in your account may become more valuable as your child gets closer to college age. If you’re thinking about opening a 529 plan, here’s what you need to know about how these plans work and how they might fit into your savings goals.
8) Know Your Child Care Options
Most new parents don’t stop to think about child care as a financial decision—they just do what’s best for their kids. But if you’re going back to work, having a nanny or daycare center is going to cost money. The good news is that there are tax breaks and credits that can help you defray these costs. Here is some factors to consider when deciding how to handle child care: How old your children are; How much time you’ll need to spend at work.
Whether both parents will be working outside of the home; What other arrangements might be available (e.g., grandparents, family members, etc.). Keep in mind that in most cases, childcare expenses aren’t deductible. However, if you have a dependent-care flexible spending account through your employer or one with an employer-sponsored savings plan like a 401(k), contributions can reduce your taxable income and increase your take-home pay while saving for retirement.
These accounts are typically only offered to employees who have young children but they allow families to save on taxes while making pre-tax contributions toward dependent care expenses like daycare and afterschool programs. Be sure to check with HR before enrolling in either type of account so you know exactly how it works.
The most important financial advice I can give is don’t try to keep up with Joneses. There will always be someone who has a bigger house, a better car, or an earlier retirement. Keep your eyes on your personal goals and when you meet them, raise them. Just keep in mind that you are unique and have unique goals. Those goals should be what drive your decisions – not someone else’s achievements.
Set realistic expectations for yourself based on your income level and create a plan of action. Finally, if all else fails – follow Suze Orman’s golden rule: Pay yourself first! Save 10% of every dollar you earn into some sort of retirement account (I prefer 401k). Then put away 20% of everything you make into savings. Use any extra money to pay down debt.