New Parents Should Take Steps to Get Their Finances in Order
When you become a parent, you become responsible for the well-being of another life. There’s no doubt this makes you feel at least a little bit of stress. There are tons of expected and unexpected costs that come up during the life of a growing child. Instead of sitting around worrying, the best way to provide some peace of mind for your family is to do some essential financial pre-planning. Here’s how to get started.
Take Care of Insurance
Every parent should seriously consider life and disability insurance. These policies can help support your family in the unfortunate event of your death. For example, it can help pay off your mortgage or contribute to your children’s college funds. Similarly, disability insurance can be a huge relief if you or your partner can no longer work because of an injury or illness. If your employer already provides disability insurance, make sure that it covers things like child care, household expenses, and mortgage payments.
You’ll also need the right car insurance to protect your family. Many new parents opt for full coverage to protect themselves in every situation. Full-coverage insurance provides liability, collision, and comprehensive coverage. This type of coverage is pricier, but some insurers offer discounts if you combine multiple policies (e.g., home and auto insurance), haven’t been in any accidents, and are a long-time customer.
Build an Emergency Fund
An emergency fund will keep you financially stable if any large, unexpected expenses come up. According to Investopedia, about 28 percent of Americans have no emergency savings. Your emergency fund should cover living expenses for your family for at least six months. You never know when you or your partner might lose a job or when your car will require a major repair. To set up this emergency fund, try scheduling automatic transfers to a separate savings account so you don’t feel the urge to spend the money.
To build up your emergency fund, you may need to find new ways to save.
Understand Your Net Worth
If you add up the value of everything you own minus the total of all of your debts, you’re left with your net worth. This is essentially a measure of your financial health. Do this on a regular basis and you will be able to track whether your financial health is improving or deteriorating. For example, as you put more money into savings accounts or pay off your mortgage, your net worth improves. As you take on more credit card debt, your net worth goes down.
Knowing your net worth and what effects it will help you make good financial decisions. For example, paying off high-interest debts will strengthen your financial health in the long run. When calculating your assets, you’ll need to figure out the value of your home. To do this, make an appointment to talk with a real estate agent or tap into one of many online valuation tools.
Focus on Your Retirement Savings
Although most parents always want to put their kids above themselves, sometimes you have to focus on your own needs. For example, The Seattle Times stresses the importance of prioritizing your retirement savings over your kids’ college funds. It’s necessary that you save for retirement, but it’s optional to save for college. If you don’t take care of providing for yourself in your old age, your kids will have to help you out. But if they need extra college funds they can get a job, search for scholarships or apply for loans. These options aren’t available to retirees.
Save for College as Soon as Possible
When you’re sure that your family is financially stable, and you are set to support yourself after you retire, you can start thinking about saving for college. If possible, start saving as soon as you can. The earlier you start making contributions to a college savings account, the more interest you’ll earn. Here’s a list of college savings plans in the U.S. and other programs that can help you fund your child’s tuition. Just be aware that if your child decides not to attend college, you may face fees or tax penalties from some of these programs.
If you’re feeling overwhelmed by all the expenses of child rearing and the extensive amount of saving you need to do, look into what tax and employer perks you can get for your family. These financial benefits can make you feel better about the financial stress of having a child and can ease the burden on your own bank account. Remember, it’s never too late to improve your financial health! Start planning today to ensure a happy and successful future for your family.