From managing the school lunch assembly line before school to financing your first house, raising a young family can be one adventure after another. You may soon realize that the fiscal modus operandi that works for a childless couple doesn’t function quite as well for a family with young children. Here are five ways to adjust to the financial rigors of parenthood and protect your growing family.
Begin an Emergency Fund
Big expenses like a broken transmission or backed up septic tank always seem to happen at the worst possible moment. If you don’t have a monetary buffer in the family bank account you may find yourself unable to afford the necessities while you deal with surprise repairs or emergency medical expenses.
Building an emergency fund doesn’t have to put a strain on your monthly finances. Begin small: have a percentage of each paycheck automatically deposited into a savings account. Don’t dip into this fund for little league registration fees or family summer vacations.
Once you’ve saved up at least $1,000, you may want to put the percentage of your income that has been going straight into your emergency fund toward loans, credit card debt, or building an emergency fund that could sustain your family for up to six months.
Complete Your Estate Planning
When you’re just starting your family, there are plenty of excuses to put off your estate planning. You’re young and busy with your kids and career, but the best time to work on your estate planning is long before you’ll actually need it.
Even if you don’t have any financial assets to worry about after you pass away, it’s important to establish a will. Your will is how you legally dictate guardianship of your children in the event that they lose both parents. It may be difficult to contemplate the possibility of a death in your family, but estate planning is vital for preparing for your family’s future. Turn this somber task into a teaching opportunity; use your will to help your children understand death and the importance of financial preparation. Take the time now to set up a trust for your kids.
Invest in Life Insurance
There are several kinds of life insurance. Edmonton insurance provider Drayden Insurance Ltd. lists these three common types of life insurance:
- Universal Life Insurance: UL insurance is a permanent policy, under which excess premium payments are added to the cash value of the policy.
- Whole Life Insurance: WL insurance is also a permanent policy which covers funeral expenses as well as estate planning costs.
- Term Life Insurance: TL insurance is typically the cheapest choice as it only covers you for a set time period (most commonly 10, 15, 20, and 30 years).
You may not have the means to invest in a universal policy right away, but even a term policy protects your family from the unthinkable burden of losing you or your spouse. Consider investing in a policy for both parents, even if only one of you works outside the home. Don’t underestimate the role of a homemaker in keeping a home running when purchasing a second life insurance policy. The loss of a homemaking parent may necessitate enlisting the help of a housekeeper or childcare service, which would raise monthly expenses considerably.
Adjust Your Budget
As more members are added to your family, you will likely find that you need to decrease certain expenses (like entertainment and eating out) in favor of groceries, clothes, and medical expenses. If your budget is a little outdated, modify it or create a new one.
Create a budget with an online worksheet or take some time to determine your monthly expenses. Change your budget as needed to accommodate expenses that will grow as quickly as your family does.
Evaluate where you see your family five or ten years down the road. Will you have college-age children by then? Do you hope to have a different career or live in another home?
Hold a family meeting to establish some collective goals. Consider the following:
- Setting aside money for a college fund.
- Starting a savings account toward your kids’ first cars.
- Working to pay off smaller debts, like a credit card balance, to make way for a future house payment.
You don’t need to invite a financial planner to the meeting—if a piggy bank on the kitchen counter works better for your family than an extra savings account, go for it. Develop a workable plan to help your family reach its goals in the future.
Investing in these five safety measures can help you feel secure about your growing family’s future.