Keep reading to find out how to set your family up for financial success starting today.
Take Care of Debt
When you’re single, your most substantial expense is probably your rent or mortgage. But once you have a family, your costs begin to skyrocket. Suddenly you’re responsible for another human being (or two or three) and all of their needs. The expenses add up quickly. From diapers and food to clothes, childcare, and education, it’s expensive to raise a little one.
And it’s not just the daily needs that are expensive. Having a family also means incurring more debt. Debt can quickly become a burden when you have to pay for medical expenses like labor and delivery, emergency room visits, a bigger car or house, or loans for your children’s education.
So before starting a family, taking care of your debt is essential. 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 and any outstanding loans.
Depending on your situation, there are a few different ways to go about this. We’ve outlined two different strategies below to help you get started.
1. The Debt Avalanche Method
This method is about paying off your debts from the highest to the 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. You can save yourself a lot of money in the long run by first targeting your debts with the highest interest rates.
2. The Debt Snowball Method
The debt snowball method involves 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 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 seriously high interest, this might be the right option. Remember not to rack up more debt by spending less than you owe.
So, which method is suitable for you? There’s no one-size-fits-all answer to that question. It depends on your situation and what will work best for you. Speaking to a financial advisor or money coach may be wise. They can help you take a closer look at your debt and develop a plan that will work best for you and your family.
Saving more while having a family
You will be free to focus on increasing your savings if you can eradicate or reduce your debt. One way to start saving is to get into the right mindset with a no-spend challenge. You will see significant benefits as you eliminate debt, including more expendable income, improved credit, and reduced money-related stress. A healthy credit score can be crucial for future parents, as credit can dictate whether or not one can purchase a home, buy a new car, or make other major investments.
Most people carry some form of debt. It may not be realistic or even possible for you to pay everything off before establishing your little clan. That’s okay. Remember that, above all else, a child needs love and attention!
Have a Place to Call Home
Before starting a family, ensure your housing situation is stable and comfortable. Will you rent or buy? 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 circumstances and see what’s most practical 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 and time-consuming.
Starting a family can look different for everyone.
No matter what, you need to think beyond aesthetics to ensure safety. 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 and timeline. Then, get an estimate.
Set Aside Money 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, like a car repair or medical emergency.
One of the biggest reasons to have an emergency fund is to protect your family from financial hardship. An emergency fund can help keep you afloat until you get back on your feet if you suddenly lose your job or have a major unexpected expense.
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.
Remember that you should only use an emergency fund when circumstances absolutely call for it. If you must dip into it, ensure you replenish the fund as soon as possible. As you devise a plan for how to start contributing, grab your partner and discuss what may constitute an emergency in your household. 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, plan to gradually build up your savings so that you have a comfortable cushion to fall back on in an emergency.
Develop a Savings Plan for Future Expenses
Speaking of saving, 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 begin setting money aside 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 instead pursue a trade or 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 there’s a better way to use your birthday money? Instead of buying yet another toy that will be forgotten in weeks, why not put that money toward 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 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 wealthy relatives, you’ll likely 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 familiarize your child with saving for college, but it will also help build 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. What better way to do that than sharing this 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 you take lightly. Sharing your college fund with friends and family sends a clear message that you’re committed to helping your child succeed.
Remember, if you offer these gifting options to your loved ones, avoid making them feel forced to contribute monetarily. Leave the door open to exercise generosity when and how they want to.
Consider Insurances and Wills
When planning your family, it’s vital to think about more than just the here and now. It would be best if you also considered your long-term financial security. That means ensuring you have the right insurance coverage and estate planning.
Your health is one of the most important things to protect when planning a family. Make sure you have a good health insurance plan before getting pregnant. You’ll be covered for prenatal care, delivery, and any potential complications.
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. You can enroll any time of year if you’re pregnant.
Life insurance is another fundamental type of coverage to hold when family planning that will help your loved ones financially if something happens to you. It can also pay off debts and final expenses, like funeral costs.
You don’t need a lot of life insurance, but you should have enough to cover your family’s needs if something happens to you. Obtaining coverage worth 5-10 times your annual income is a good rule of thumb.
If you become disabled and can’t work, disability insurance will replace a portion of your income. This is especially important 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 is a way to protect your family financially if something happens to you. It can also help you avoid probate, a legal process that can be expensive and time-consuming.
There are a few things you should do as part of your estate planning:
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 to divide your assets.
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.
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.
Get life insurance. As we mentioned earlier, life insurance can be used to help your family financially if you die by paying off debts and final expenses.
Make an advance directive. An advance directive is a legal document that allows you to specify your medical wishes if you cannot make decisions for yourself. Ensure that your family knows your wishes and how to carry them 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! 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 insurance and wills before you embark on this rewarding journey called parenthood. Do your best to practice the advice above, and you’ll be well on your way to more manageable and happy family life.