Calling all new parents! We know that you're already bombarded with advice from every angle, from how to child-proof the house to preparing your kids for their first day of school. These are very important, but so is having your finances in order once you add new members to the family. We've jotted 6 crucial items to have in your plan to ensure the well-being and quality of life for you and your little ones. Enjoy!
We're not trying to be alarmists with this one, but rather realists. Anything can happen in life, and it's best to be overprepared than under. We recommend having at least 6 months of income saved up for any unexpected payments. Don't wait until something happens to scramble for a way to pay off a bill, not only will you likely be dipping into your retirement account, but you may end up using your monthly paychecks. This will compromise your savings goals and your family's quality of life. As we like to say, "Not having a plan is planning to fail!"
2. Pay Off Your Debt
A high amount of debt causes a financially unstable environment and does not teach kids to be wise with their money. Let paying off your debt become a priority so you can not only be a good example for your kids, but also to continue saving money for their education, or your retirement. We recommend paying off your accounts with the most debt first so the interest rates won't continue increasing the amount. It will also make paying the smaller accounts off easier!
3. Life Insurance
Whether you already have kids or are planning to, don't avoid the uncomfortable-yet-very-important discussion about life insurance. This means asking how the money should be distributed if one or both of you were to pass early. It may be morbid, but it is for your kids best interest that you do. Also determining how much life insurance is needed, who will be the manager of the assets, and who will have guardianship of the children should be put in an official plan. From witnessing what can happen first-hand if one of these items is not in order, the results can lead to stress, family tension, and money being put where you don't want it to be.
4. Education Funding
Now to a less depressing topic! As new parents, you may not have your kid's college educations on the brain quite yet. But now is the perfect time to start planning and saving! There are a few effective ways of doing this, such as starting a 539 Plan or UMGA Account. Both methods will slowly grow over time, so when your child leaves on his/her first day of college, you can be crying about how much you'll miss them instead of how much this will burn through your wallet. We recommend also opening a brokerage account so your money that would be sitting in the bank can grow over time.
5. Managing Cash Flow and Having a Sound Budget
Managing cash flow simply means making sure you're not spending more than you take in. That's where a sound budget comes in handy! Communication with your spouse is essential when financially planning, so by having a weekly or monthly "meeting" to review and make any necessary changes in the budget, you can keep on track. Not only will this allow you to reach your financial goals, but it can help you steer clear of any stress or disagreements about money in the future. We've all been there and done that- let's just say it's not fun and worth putting in the effort to avoid.
We hope we haven't entirely bummed you out on the necessary things to have in financial order when you start a family. We believe that once these items are taken care of, you will experience less stress and have more quality time to spend with your kids. You've embarked on an amazing journey, one that we are here to help you on! Don't be afraid to ask any questions or stop by to discuss any of these matters.