When you have your first baby, you will immediately start thinking about your family’s financial future. You might even start to lose sleep over financial concerns that never crossed your mind in the past. Taking a proactive approach to finances can offer an invaluable peace of mind, while ensuring your young family is set up for a stable and comfortable future.
If you don’t know where to start, you’re not alone. Many young families struggle with financial planning in the beginning. Thankfully, there are countless resources out there that can point you in the right direction! Parents.com, for example, is an excellent source of advice for those looking to prepare for a new edition to their family.
Here are just a few more important tips to get you started!
How to Protect the Future of Your Little Ones
Start Saving for Retirement Now
The earlier you start saving for retirement, the better. Why? Because when you start young, you can put less money away each month due to the power of compound interest. Compound interest occurs when the interest earned on investments is reinvested, generating even more interest.
You may be tempted to start saving for your child’s college education before contributing to your retirement fund, but this is not advised. Your Social Security benefits are unlikely to completely replace your income when you retire, so it’s important to have savings in place to help make up the difference. Your kids can easily get loans for college. Retirement loans, on the other hand, are very difficult to come by. As hard as it might be to put yourself first when you have little ones, make sure you’re on solid financial footing before putting money aside for college.
Don’t Rush the Home-Buying Process
Now that you have a child, you might start thinking about buying a home that you and your family can make your own. Try not to rush this process. Start planning your home purchase early so you have plenty of time to get everything in order. You’ll want to check your credit score, calculate your home affordability, and research your home loan options. If you’ve got poor credit, you can increase your score by paying down debt and ensuring your bills never go past due. Paying down debt will also improve your debt-to-income ratio so you have a better shot at getting your mortgage application approved.
When determining how much home you can afford, consider leaving room in your budget for a home warranty. A home warranty will offer coverage for systems and appliances in your home—items not typically covered by basic home insurance. Reviewing your home inspection report can help you determine whether a home warranty may pay off in the long run. If you buy a home that will need some major maintenance in the future, a home warranty might be worthwhile.
Grow Your Emergency Fund
Besides saving for retirement and contributing to your home-buying fund, you should also revisit your emergency fund to ensure your emergency savings will meet the changing demands of your growing family. Mint suggests saving 3 to 6 months of post-tax income in your emergency fund. The amount you put away will depend on the number of income earners in your household as well as your debts, lifestyle costs, and whether or not you have insurance to cover unexpected expenses.
Purchase Life Insurance
Life insurance is another important safeguard that young families should consider. According to a recent survey, 42% of households would have a hard time covering living expenses within 6 months following the death of the family’s primary earner. Life insurance exists to prevent our loved ones from shouldering these burdens. And if you’re planning on buying a home with your spouse, life insurance is a no-brainer. Although life insurance discussions can be uncomfortable, planning for the worst will ensure your family is covered no matter what happens.
Adopt a Savings Mindset
Growing your family comes with all kinds of new savings necessities. Between saving for a home and putting money aside for retirement, you’re going to be putting a large portion of your income towards various savings goals over the coming years. Try to adopt a savings mindset so you can stick to your financial plan! Embrace intentional spending and avoid buying things on impulse. Relinquishing the short-term rewards that come with new purchases and putting your money in savings requires discipline. The good news is that the more you make the conscious choice to save rather than spend, the faster this will become a habit.
Maintain a Household Budget
When you have kids, you’re going to spend more money on things like food, clothing, and healthcare. Track your spending for a couple of months to get a clear picture of your regular expenses. Once you know where your money is going, create a budget that accounts for your realistic spending. Most importantly, include room in your budget for your various savings contributions.
Buy Less Stuff
After taking a good look at your family spending habits, you may discover that you’re spending more money than you’d like on nonessentials like takeout, home decor, and subscription services. You’re not alone! USA Today reports that the average American spends about $18,000 a year on nonessentials.
If you want to cut back, try embracing a minimalist lifestyle. Cook more meals at home, subscribe to just one or two streaming services, use the library rather than buying books, make your tech last longer instead of buying the newest releases, and source used clothing from thrift stores. Giving up just a little luxury can put your family in a better position to meet those long-term financial goals!
Don’t let financial stress weigh you down. As a young family, you will have plenty of time to take control and set your children up for a stable financial future, so long as you get started right away. Start making a home buying plan, set money aside for retirement, grow your emergency fund, and rein in your spending–Your future will certainly thank you!