Basics of financial planning for young families

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If you’ve never cared for a toddler before, you might be learning all sorts of new skills, like changing a diaper or walking on tiptoe around the house without making a peep. While you may be keen to become a diaper-changing pro, don’t forget about your finances, and especially your retirement.

Raising a person is expensive. This can be a big problem if you don’t have a plan, but it’s a challenge you can overcome if you take the right steps. Here are the things to consider for your new family’s finances.

Create a budget

One of the challenges of having a baby is the many costs involved. It’s important to consider these expenses so you can adjust your budget as needed. First, you need to plan for common expenses like diapers, formula (or breast pump), a car seat, a crib, clothes, and baby toys.

We’re all familiar with these items, but you may not realize how much they’re going to cost you. Exact costs vary by family, but you can still estimate them. For example, according to the US Department of Agriculture, an average family spends between $20,000 and $50,000 in the first year of a child’s life, depending on where they live and household income.

Build an emergency fund

Next, it is important to have an emergency fund whether you have children or not. But adding another little human to your nest raises additional concerns. Of course, there’s no need to worry if you prepare for it. For example, losing a job can be even more painful when a small person depends on you. After all, they won’t stop feeling hungry when your finances take a hit.

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In general, experts recommend spending six to nine months or more on an emergency fund. If you don’t have an emergency fund or can’t get by for at least six months without a job, it’s time to put some money aside. The first way to do this is to cut costs, for example for streaming services, or find cheaper car insurance.

However, some families are already running barebones operations. If this is the case and you still have nothing left, it may be necessary to increase your income. You may be able to achieve this by acquiring new skills and asking for a promotion at work. Or you can take up an online part-time job. Whatever you choose, start by putting some money aside in a high-yield savings account each month.

Increase your pension contributions

Anyone who has flown knows the saying, “Fit your own oxygen mask first before helping others.” A key financial strategy is to prioritize your future in retirement before helping others, even your children . By securing your own retirement savings first, you ensure that you don’t put a financial burden on your family later. This will help you build a strong financial foundation that will give you peace of mind in your golden years. Also, by taking care of your own financial well-being, you will be better able to help and support others in the future.

Plan your child’s education

After planning your retirement, the next step is planning your child’s education. They know they’ll probably be in school until they turn 18, but things can get even murkier after that. However, take a look at your family. If everyone in the family has gone down the college path, your child may well do the same. The cost of college has risen rapidly. Therefore, if you believe your child’s future lies in college, it is wise to start saving now. However, remember that you should focus on your own retirement first before attempting to save for your child’s college education.

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There are many ways to save for college, including 529 plans, UTMAs, and Coverdell ESAs. 529 plans are generally the most popular route, but check out the various college savings plans. Let’s face it: college is expensive. So the earlier you start, the better.

Update insurance coverage

Finally, it’s a good idea to review your insurance coverage and update it if necessary. If you don’t already have life insurance, now is a good time to get one. While it’s not a pleasant topic to ponder, being prepared is far better than the alternative. Your best bet is to consult a financial advisor who can advise you on how much protection you need. While this means you will have to pay an additional fee, it will be worth it as you will be prepared for whatever the future may bring.