Once you have a child, you realize your choices make a significant impact on your current and future situation. However, knowing you need to stabilize your finances and knowing how to go about it aren’t the same thing. Follow this practical financial planning advice to give you and your family a firm financial foundation.
Children are expensive. Most parents realize quickly that having children isn’t cheap. In fact, some research shows raising a child will cost you close to $13,000 annually. If you send your youngster to college, the costs can range between $10,000 and almost $60,000, depending on the institution. Given that those costs are virtually guaranteed to rise over time, it doesn’t take a math whiz to recognize you need to manage your money appropriately in order to fund those expenses.
First thing’s first. You and your spouse should sit down and discuss your financial planning goals. Your discussions should cover your current situation, such as whether you need to purchase a new car. You should also talk about future expenditures, such as whether you intend to pay for your child’s college education. While this is important “business,” one suggestion is to make the discussion fun. Gather your pens and calculator, order your favorite pizza, and open a bottle of wine. Keep things light yet productive!
Budget basics. Another important priority is to establish a monthly budget. After all, you can’t realistically fund any of your goals without knowing your financial situation. The Balance suggests starting with your monthly expenses. Gather all your bills and tally them. If you have other, non-monthly expenses such as insurance or car registrations, compute how much you need to save for them per month and include them as well. Also include more flexible expenditures, such as entertainment, gas, gifts, clothing and groceries. Once you have all your expenses listed and tallied, calculate your monthly income, being sure to include all sources. Subtract your expenses from your income, and the end result should be zero. If you have money left, put it into savings. If you are in the red, you need to cut spending; usually the easiest places to cut are in things like clothing and entertainment.
Review insurance. Now that a child depends on you, your insurance policies are more important than ever. As USA Today explains, you should review your life insurance and disability policies to ensure you have adequate coverage. Research how various types of life insurance policies function, as well as how cash values and premiums vary. For instance, you can sell most life insurance policies in retirement to free up cash. In this way you not only provide for your family if something should happen to you, but you also have a safety net in place if money gets tight due to medical issues or other unforeseen circumstances. That said, be sure you do thorough research prior to making the decision — you’ll want to be certain it’s the right one for you and your family.
Retirement savings. Chances are right now you are focused on your child. However, as NerdWallet points out, planning for your own future is more important than ever. After all, you don’t want to be a burden to your child when you are older, so it’s vital to invest in your own retirement. There are many types of retirement plans. Usually the best options available are employer-sponsored plans because they are typically offered to you at little or no cost.
Prepay funerals. While it’s not something anyone enjoys thinking about, it’s important to talk about funeral arrangements. When you prepay funeral expenses, you can save your family money and alleviate emotional stress during what will be a difficult time for them. You have several options:
- Joint bank account. When someone passes away, their assets can be frozen temporarily. By opening a joint account, you can avoid this issue.
- Buy a pre-need insurance plan through a funeral home. This can simplify plans greatly; however, it’s important to review the details of individual plans carefully.
- Final expense insurance policy. These policies cover not only funeral expenses but also final medical expenses.
Your spending habits are no longer just about you. By making smart choices about financial planning now, you prepare yourselves and your children for the future. By using these practical tips, you and your children can enjoy financial stability.
About the Author
“After losing her husband Greg, Sara Bailey created TheWidow.net in the hopes of sharing her journey of grief and provide insight and hope to those who experience loss. She is also the author of the upcoming book Hope and Help After Loss: A Guide For Newly Widowed Parents.“