Many people do not pay attention to their finances until a major life event occurs. In the case of first-time parents, this is frequently the birth of their first child. If you’re expecting a child, you should consider the financial implications before the big day: you’ll have plenty on your mind afterward! Don’t be disheartened if you didn’t plan ahead of time.
There is still time to catch up. Whether you’re expecting your first child, have a newborn, or are considering conceiving or adopting, it’s never too early to start planning your financial position. Here are five indications to help you get started!
1. Make a Budget
You can begin by performing a personal cash flow analysis. Simply write down your monthly income sources and then compare them to your monthly expenses. Make adjustments to your budget to account for the additional costs of having and raising a child. Formula, childcare, furniture, and diapers are all examples of major expenses. Other unanticipated costs of raising a child may surprise you. If you notice that your income is falling short, look for ways to cut back. You can also set spending limits and try to stick to them as much as possible.
2. Save for Retirement Even If It Means Delaying College Savings
In an ideal world, new parents could save for their retirement and their child’s college education at the same time, but that can be hard to do. If you must choose, keep in mind that, while college can be costly, there are financial aid options available. That is less true in the case of retirement.
If you have more cash available over time, such as you advance in your career or receive a raise, you can start saving for your child’s education later, where the earnings from your account can be withdrawn tax-free if the money is used to pay for qualified educational expenses.
3. Create an Emergency Fund
Experts advise setting aside an emergency fund of three to six months’ worth of living expenses. This fund should only be used if you face a major unexpected expense, become unemployed, or become ill. A liquid, easily accessible account, such as standard savings account at a bank or credit union, or another interest-bearing bank account is the best place for your emergency fund. This type of account gives you a return on your savings while also allowing you to withdraw your funds at any time without penalty.
4. Prepare for the Unexpected — Make a Will
Consider what would happen to your children if you and your partner died before they reached the age of majority.
You must be willing to have a say if you want to have one. A will allows you to name a guardian for your child as well as someone to manage their finances until they reach the age of legal adulthood. If you do not appoint a guardian for your child, the court will.
5. Get Life Insurance
Dealing with the loss of a spouse is difficult, especially if you also have to learn how to be a single parent while you mourn, but it doesn’t have to be financially devastating. Purchasing a life insurance policy is one way to mitigate financial loss. Because life insurance is designed to replace a person’s lost earnings, consider how much your household will suffer if either parent dies. This can help you decide whether or not to buy insurance.
While you can’t always control your own or your child’s situation, taking these steps is a great way to prepare for a variety of financial obligations that may arise in the future. Creating long-term financial plans and goals can help your family achieve financial stability, especially during the years when your child is most reliant on you.
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