5 Financial Steps to Take Before Starting a Family

Let’s face it, starting a family can be expensive. When you add inflation and a possible recession into the mix, adding a kid to the mix can feel impossible, especially when raising a child is becoming even more costly. But you don’t have to give up on your dream of creating a family.

With this guide we’ll help you prepare financially for family life so you can spend less time stressing about money and more time making memories with the ones you love.

Keep reading to find out how you can set your family up for financial success starting today.

In this parenting gif, a dad is toasting his so-so parenting with a glass of champagne.

Take Care of Debt

When you’re single, your biggest expense is probably your rent or mortgage. But once you have a family, your costs start to skyrocket. Suddenly you’re responsible for another human being (or two or three) and all of their needs. From diapers, food and clothes to childcare and education, the expenses add up quickly.

And it’s not just the daily needs that are expensive. Having a family also means incurring more debt. From paying for medical expenses like labor and delivery, every visit to the emergency room, buying a bigger car or house to taking out loans for your children’s education, debt can quickly become a burden.

So before you start a family, it’s important to take care of your debt. Not only will this make your life easier, but it will also help you provide for your family in the long run.

Create a plan

Remember to pay all bills on time and create a plan to reduce balances on credit cards, as well as any outstanding loans.

There are a few different ways to go about this, and it really depends on your individual situation. But we’ve outline two different strategies below to help you get started.

1. The Debt Avalanche Method

This method is all about paying off your debts from highest to lowest interest rate. So, if you have a credit card with a 20% interest rate and a personal loan with a 10% interest rate, you would focus on paying off the credit card first.

The reasoning behind this is simple – the longer you keep debt around, the more it will cost you in interest. So by targeting your debts with the highest interest rates first, you can save yourself a lot of money in the long run.

2. The Debt Snowball Method

The debt snowball method is all about paying off your debts from smallest to largest. So, if you have a credit card with a $5,000 balance and a personal loan with a $10,000 balance, you would focus on paying off the credit card first.

The reasoning behind this is two-fold. First, it’s a great way to build momentum and keep yourself motivated. When you see those smaller debts disappearing quickly, it’ll give you the drive to keep going.

Second, it can help you save on interest charges. By targeting your smaller debts first, you’ll be able to pay them off before they have a chance to rack up a lot of interest.

3. Debt Consolidation

If you have the necessary credit score, you can consolidate your loans using a personal loan. If you have trouble keeping track of your bills or suffer some seriously high interest, this might be the right option for you. Just remember not to rack up more debt by spending less than what you owe.

So, which method is right for you? There’s no one-size-fits-all answer to that question. It really depends on your individual situation and what will work best for you. It may be wise to speak to a financial advisor or money coach first. They can help you take a closer look at your debt and come up with a plan that will work best for you and your family.

Saving more while having a family

If you can eradicate or reduce debt, you will be able to focus on increasing your savings. One way to start saving is a no-spend challenge which will help you get into the right mindset. As you eliminate your debt, you will see great benefits, including more expendable income, improved credit and reduced money-related stress. A healthy credit score can be especially important for future parents, as credit can dictate whether or not one can purchase a home, buy a new car or make other large investments. 

Most people carry some kind of debt. It may not be realistic or even possible for you to pay off all of it before establishing your own little clan. Remember that the most important things a child needs are love and attention!

Have a Place to Call Home  

Before you start a family, make sure your housing situation is stable and comfortable. Will you rent or buy? It’s important to weigh your options before making this decision.

For instance, renting alleviates the burden of financial responsibility for damages or repairs. On the other hand, buying a home is an investment, as it helps you build equity. So what’s the right choice? Well, there isn’t one. You’ll have to assess your personal circumstances and see what’s most realistic for you and your future family.

If you already own a home, this is the time to take note of anything that needs repairing, as home improvement projects can be costly.

Starting a family can look different for everyone.

Are you creating a family the old fashioned way, adopting or using some other method? The answer to this question could impact what home updates need to be made. For instance, if you are adopting a child or teenager, you can forgo baby proofing your home.

No matter what, though, you need to ensure safety, thinking beyond aesthetics. Consider things like mold remediation and appliance upgrades to reduce the risk of fires. Once you create a list of home improvement projects, come up with a reasonable budget, timeline, and then get an estimate.

Set Aside for an Emergency Fund

One of the most important things you can do to protect your family is to create an emergency fund.

An emergency fund is a savings account that you use to cover unexpected expenses. This could include anything from a car repair to a medical emergency.

One of the biggest reasons to have an emergency fund is to protect your family from financial hardship. If you suddenly lose your job or have a major unexpected expense, an emergency fund can help keep you afloat until you get back on your feet.

Another reason to have an emergency fund is to avoid going into debt. If you don’t have savings to cover an unexpected expense, you may be forced to put the cost on a credit card. This can lead to high interest charges and put your family in a difficult financial situation.

Keep in mind that an emergency fund should be used only when circumstances absolutely call for it and replenished as soon as possible. As you come up with a plan for how to start contributing to this fund, discuss with your partner what may constitute an emergency in your household and lives. This will help you avoid arguments about whether or not to use the money and when. In addition to determining what crises warrant the use of these funds, look into high yield savings account options. These types of bank accounts will allow your money to grow faster.

Creating an emergency fund should be a priority for any family. It can help you weather financial storms and avoid putting your family in debt. Start by setting aside as little as $5 to get started. Then, make a plan to gradually build up your savings so that you have a comfortable cushion to fall back on in case of an emergency.

Speaking of saving

Develop a Savings Plan for Future Expenses

The future looks different now with the possibility of becoming parents! From 529 plans to a simple piggy bank, there are many small ways to start setting aside money for your child’s future expenses, such as higher education. Your family size, income, expenses, and debt are all factors that you should consider.

Have an open mind about what your child’s future could look like. Perhaps, they won’t choose to attend a university, but rather pursue a trade or some other path. Such a thought process will help you determine whether a 529 plan, for example, is worth it or not. 

Opting out of presents

If you are planning on starting a family by having a baby rather than adopting a child or teenager, one way to start setting aside money for your bundle of joy is to set up a cash fund as part of your gift registry. Or better yet, share the college fund during birthdays and holidays.

We all love getting presents, especially on our birthday. But what if we told you that there’s a better way to use your birthday money? Instead of buying yet another toy that will be forgotten in a matter of weeks, why not put that money towards your child’s college fund?

It may not be the most exciting present for them to unwrap on their big day, but it’s a gift that will keep on giving. And who knows? Maybe one day they’ll thank you for it.

Here’s why you should share your college fund with friends and family on special occasions:

1. It’s a great way to start saving for college.

Unless you’re lucky enough to have a trust fund or rich relatives, chances are you’ll need to start saving for college as soon as your child is born. And what better way to do that than by asking friends and family to contribute to their future education? Not only will this get them used to the idea of saving for college, but it will also help you start building up a nest egg.

2. It’s a way to involve your child in the college planning process.

Because let’s face it, planning for college can be overwhelming. By involving your child in the decision-making process, you can help them understand the importance of saving for their future. And what better way to do that than by sharing your college fund with them on their birthday or another special occasion?

3. It shows your child that you’re committed to their future.

Sending your child off to college is a big deal, and it’s not something that you take lightly. By sharing your college fund with friends and family, you’re sending a clear message that you’re committed to helping your child succeed.

Just remember, if you choose to offer these gifting options to your loved ones, avoid making them feel forced to contribute monetarily. Leave the door open for them to exercise generosity when and how they want to. 

Consider Insurances and Wills

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When you’re planning your family, it’s important to think about more than just the here and now. You also need to consider your long-term financial security. That means making sure you have the right insurance coverage and estate planning in place.

Health Insurance

Your health is one of the most important things to protect when you’re planning a family. Make sure you have a good health insurance plan in place before you get pregnant. That way, you’ll be covered for prenatal care, delivery, and any complications that may arise.

If you don’t have health insurance, now is the time to get it. You can sign up for a plan through the Health Insurance Marketplace. If you’re pregnant, you can enroll any time of year.

Life Insurance

Life insurance is another important type of coverage to have when you’re planning a family. If something happens to you, life insurance will help your loved ones financially. It can also be used to pay off debts and final expenses, like funeral costs.

You don’t need to have a lot of life insurance, but you should have enough to cover your family’s needs if something happens to you. A good rule of thumb is to have coverage that’s worth 5-10 times your annual income.

Disability Insurance

If you become disabled and can’t work, disability insurance will replace a portion of your income. This is important to have if you’re the primary breadwinner for your family.

There are two types of disability insurance: short-term and long-term. Short-term disability insurance covers you for a few months, while long-term disability insurance covers you for several years or until you retire.

It’s a good idea to have both types of coverage. That way, you’ll be covered no matter how long you’re out of work.

Estate Planning

Estate planning is a way to protect your family financially if something happens to you. It can also help you avoid probate, which is a legal process that can be expensive and time-consuming.

There are a few things you should do as part of your estate planning:

1. Make a will: A will is a legal document that specifies how you want your assets to be distributed after you die. Without a will, the state will decide how your assets will be divided.

2. Name a guardian for your children: If something happens to you and your spouse, you’ll need to appoint someone to care for your children. This person will be their legal guardian.

3. Create a living trust: A living trust is a legal document that allows you to transfer ownership of your assets to someone else. This can be used to avoid probate and protect your family’s finances if something happens to you.

4. Get life insurance: As we mentioned earlier, life insurance can be used to help your family financially if you die. It can also be used to pay off debts and final expenses.

5. Make an advance directive: An advance directive is a legal document that allows you to specify your medical wishes in the event that you’re unable to make decisions for yourself. This can be used to ensure that your family knows your wishes and that they’re carried out.

Taking the time to think about your insurance and estate planning needs now will help you protect your family financially in the future. If something happens to you, they’ll have the financial security they need to maintain their lifestyle.

The beginning of a new chapter in your life, like parenthood, is exciting! To avoid letting unfavorable financial situations dampen that joy, be determined to tackle debt, establish a home, create an emergency fund, develop a savings plan for your child’s future and take care of insurances and wills before you embark on this rewarding journey called parenthood. Do your best to put into practice the advice above and you’ll be well on your way to an easier and happier family life.

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