Start Now: Financial Planning Advice for Parents

New Blog from our friend Sara Bailey at thewidow.net.

Children are a blessing, as the saying goes. But the reality of raising a child in this day and age is an imposing one that requires very careful financial planning. According to a US Department of Agriculture report, the cost of raising a child for a middle-income family has jumped to more than $233,000, so the sooner parents begin long-term financial planning, the better positioned they’ll be to meet the demands that arise at each new phase of a child’s life. The good news is that a lot of good financial planning comes down to anticipation, common sense and preparation. 

Life insurance

Life insurance is an expense that young people are often unfamiliar with, but it’s one worth looking into even before expanding your family, because it’s an investment in your family’s security and well-being should something happen to you or your spouse. Before purchasing life insurance, take time to learn about the different kinds of policies so you end up with one that meets your needs, and be sure to look at all the expenses it can help cover. Many people don’t realize how affordable life insurance can be and that it may be used to cover funeral costs, outstanding mortgage payments, and childcare fees in addition to lost income. Be aware that cash values and insurance premiums vary, and that you can settle your policy in retirement to free up needed cash.

Check your health insurance

Being a responsible parent means making sure your health insurance is in line with your family’s needs. If you’re used to taking out minimal insurance as a young and healthy individual, it’s time to reassess your situation and priorities. Assuming your employer offers health insurance, you’ll need to sign up for family insurance and redo your household budget based on the greater cost of a family plan. Before you do, make sure you understand about deductibles and know what your out-of-pocket costs will be. 

Other employer benefits

Take advantage of employee benefits like flexible spending accounts, which allow you to save money on a pre-tax basis that can be used for childcare and medical expenses. In some cases, you can roll over up to $500 of money from year to year, which can come in very handy when you have little ones who require medical attention for things like tonsillitis or ear aches, or in the event of an unexpected large-scale medical event. Also, consider carefully when it comes to disability insurance through your employer. As a parent, disability is an important safety net for your loved ones in case you’re unable to work.

Reduce debt

Working on your debt level is always a good idea, especially if you have young children. Eliminating debt will improve your credit score and make it significantly easier to get a home mortgage and put yourself in a good financial growth position for things like a fully-outfitted nursery, major household expenses like roof repairs, or to begin saving for childcare costs. Consider getting rid of high interest credit card debt, a common problem among young people, by consolidating debt. The sooner you begin to pay down debt, the easier life will be as your family and your financial needs grow together. 

Emergency fund

Everyone needs some kind of emergency fund. This is another need to start saving for as early as possible, if you haven’t already begun. One good rule of thumb to follow is to set aside 5 percent of your total household income. Another way to look at it is as having an emergency fund capable of seeing you through six months should you lose some or all of your income or suffer another financial emergency. You never know when the car will need a transmission overhaul, if the fridge or dishwasher will give out, or if one of you will suffer job loss. Unfortunately, loss of income doesn’t mean you can suspend debt payments. 

Remember, the best time to begin financial planning is now. If you haven’t already started, remember that the cost of raising children continues to grow, which means your financial needs will, too. Make financial planning a priority so you can give yourself room to breathe and room to take care of your family.