Beginning a family is a time of great opportunity. It is a time when you are starting fresh and can actively make choices about many things, including how you manage finances. Financial planning may not be the first thing that comes to mind, but the practices you set in place early in the life of your family will strongly influence your financial future as well as the financial habits, ideas, and future of your children. Take these steps to get your new family off to a great financial start.
1. Create a household budget.
A sound budget is the foundation of any good financial plan. Many Americans have never created a budget and so never fully understand where their money goes every month. It’s very difficult to control what you do not understand. Making a budget means knowing just how much money you have coming in every month, how much you need, and how much you can spend on things you don’t absolutely need. To begin budgeting,
- Calculate your income from all sources.
- Track your spending.
- Separate your essential from nonessential spending.
- Look at the difference between your income and expenses.
Once you understand these basic things, you can take a hard look at how you allocate the resources you have. If you are spending more than your income, then immediate change is necessary. Even if you are operating in the black, you will be able to look at places you can save to put toward longer-term goals, such as retirement, vacations, or emergency savings.
2. Build an emergency savings fund.
Most financial planning experts advise saving at least 3-6 months worth of living expenses that you can access in case of emergencies. This is key to getting through periods of unemployment or other unexpected drains on your resources.
3. If you have credit card debt, make a plan to get out of it.
Reducing or eliminating your debt will lower your monthly expenses by getting rid of the interest you’re paying on your credit cards or other lines of credit, and it will also free up more resources for use in case of emergencies. Regularly buying items on credit that you cannot afford today is a bad financial habit that often gets consumers into trouble. Plan to pay off credit cards every month to avoid interest fees. If you already have a high balance, take a close look at your budget to determine how much you can reasonably afford to put toward paying it down every month. The more quickly you can get rid of the debt, the less money you will have to give to your creditors over the long term, which means more for your family.
4. Don’t forget insurance!
The best of plans can be derailed by failure to appropriately manage risk. Protect your family’s financial future with auto, health, and life insurance coverage.
5. Set long-term savings goals.
Now that you have a handle on your current financial picture, plan for your family’s future. There are a number of goals, some larger and some smaller, that new families often have, including
- Buying a home
- Buying a car
- Taking family vacations
- Planning for additional children
- Saving for college
- Saving for retirement
Consider the relative weight of your goals, and allocate a portion of your budget to them accordingly. A qualified financial planner can help you learn how best to progress toward your goals.
6. Teach your children well.
You are your child’s first teacher in all things, including finances. When you start your new family out on the right track with budgeting, debt control, insurance, and savings, your children learn important financial values. You can extend that lesson by talking to them about purchasing decisions, how much things cost, and prioritizing wants. Talk to them about putting money aside for special things like a family trip and forgoing little extras so you can save for that special treat. When they are old enough, an allowance will help them build a sense of impulse control and teach them to save for things they really want.
Boelman Shaw offers professional advice for your family financial planning needs. We provide a full range of financial services, including savings and investment, insurance, and tax planning. Let us help you get your family off to a great financial start!
Material discussed herein is meant for general illustration and/or informational purposes only. Because individual situations will vary, the information shared here should be used in conjunction with individual professional advice.