Starting a family means a lot of new, joyful experiences are headed your way. However, it also means you’ll be shouldering many new responsibilities. Try your best not to stress though! Instead, start making plans. The sheer number of things new parents have to plan for can be overwhelming, but you won’t regret thinking ahead, especially when it comes to your finances. Taking the time to develop a financial plan for your growing family will actually bring you peace of mind and make you feel much more prepared for the future. Here are the five top financial tasks new parents should focus on first...
1. Get Life Insurance
The parts of financial planning that require you to consider what life would be like for your loved ones without you are no fun, especially when you’re still young and have just started to grow your family. However, it is crucially important to tackle them, sooner rather than later. One of these tasks is getting life insurance, which could help your family pay for things like a mortgage, tuition, wedding, and so much more, in case of unfortunate circumstances. Both parents should do this individually to ensure all bases have been covered.
If both parents work, it will probably make the most sense for the one who earns the most money to buy the bigger policy. The whole point of buying life insurance is so that your family would be able to make up for your lost income in your absence. That being said, if one parent is a stay-at-home mom/dad, which is a job all on its own, that doesn’t mean they shouldn’t buy life insurance. Childcare can be extremely expensive (no seriously, as expensive as a second car payment or mortgage) so your family should also be prepared to cover those costs.
2. Start Estate Planning
Estate planning can also be unpleasant at times, but it must be done. This includes drawing up a will, which is incredibly important for new parents as this document dictates the guardian for your child if something were ever to happen to both you and your partner. Speak to an attorney to make sure that guardianship and health care decisions are all set as soon as possible. Next, find out if setting up a trust is the right choice for you. Finally, make sure your beneficiary designations are up to date.
3. Save More
A lot of us have “rainy day” savings tucked away for those expenses you just can’t predict and/or to use as fun money on occasion. Adding to your family means adding to this savings. It will be more important than ever to make sure your household can run smoothly, even if a parent loses a job or gets sick, or an unexpected expense comes up, like home repairs. Most experts recommend keeping three to six months’ worth of living expenses in your family’s emergency fund.
Aside from saving for the unexpected, both individuals and families have concrete things they know they’ll have to pay for “in the future.” Well, the future creeps up on us all, so it’s best to
start preparing now, especially if you’re growing your family. For example, not only will you be paying off your own student loans, you’ll also likely need to start saving for at least part of your child’s college expenses. That totally changes your budget.
It’s also important to keep saving for your retirement. It can be tempting to push this off to cover the costs of parenthood but try to avoid this. Afterall, you don’t want your kids to have to be financially responsible for you some day. This is why it’s important for you to save and not just spend on your kids to make them happy in the moment. It won’t be worth it if they get stuck with financial burdens later in life that you could have prevented.
4. Create a Budget
This will help you cut unnecessary spending so that you can bulk up those savings accounts we just mentioned. Of course, it’s important to be realistic. You want to make sure you can continue to pay for your daily expenses, and boy are there a lot of daily expenses when you’re a new parent: diapers, baby food, childcare, and so much more. To a certain extent, it doesn’t help to save so much for the future that you can’t live comfortably in the present. That’s why you’ve got to run the numbers and make a budget for your household.
First, figure out your current financial health. Then make a plan that incorporates any possible ways to improve your present status. Next, you must track everything over time. Revisiting your budget frequently holds you accountable, and it also shows you new opportunities. Things change so quickly for new families, which makes it absolutely crucial to adjust your budget when necessary.
5. Automate Everything That You Can
Life with a new baby is mentally and physically exhausting, and it’s just logically time consuming. The budget will help, but if you want to go one step further, set up automatic withdrawals for bills, retirement accounts, anything you can. You will thank yourself later. Don’t make life harder for yourself than it has to be, especially considering all the modern conveniences that are at our fingertips these days.
Someone who can help take some of the weight of your shoulders is a financial advisor. Their job is to offer a professional, outside perspective that takes the big picture into account. Plus, many financial advisors these days often supplement their services with software, such as eMoney. This allows both them and you to accurately and easily monitor your finances from any computer, tablet, or smartphone wherever and whenever. On the other hand, you're still able to pick up the phone and talk to a real person when that better suits your needs.
So, start planning, and don’t be afraid to ask for help! You should be enjoying this time in your life, not wasting it worrying. Once you have a financial plan in place and a team that will help keep you on track, you’ll be able to focus on what this is all about: your family.