With diapers, toys spewing across the floor, lack of sleep, and the Rolodex of sicknesses finding their way into the household, young families have their challenges cut out for them. But unfortunately, only a few have it figured out when it comes to financial planning for young families. It takes time to get a family’s finances in order and commitment to keep on top of it. And when you are just trying to survive the day and don’t actually understand what financial planning means to you, it’s easy to see why finances to most just means paying the bills on time.
Is it imperative? It absolutely is whether you are a young family or not. Having control of your finances can tremendously improve your life. Controlling your finances doesn’t necessarily mean becoming wealthy. It is more about not stressing about money, preparing for unattended life events, and feeling confident you are moving toward your financial goals. And with money problems being one of the leading causes of divorce, this one facet of life may carry over to many other aspects. Financial planning for a young family should be right behind keeping your little toddler from harming themselves.
There are more areas than we can cover in today’s article. Nevertheless, today, we highlight the importance of goals, budgets, and protection from financial catastrophe.
It would be best if you had a basis when it comes to financial planning so you know where you are going. Defining goals beyond having estimates is the only way to get to the outcomes you want. It would help if you had a time frame and a dollar amount to make the goal specific enough. Financial goals are defined by knowing what you want for your family and life and how to protect your loved ones.
Common financial goals include: saving $80,000 for college in 17 years, retiring at age 67 with $1.2 million in savings, being able to take a $10,000 family vacation every five years, and, if death occurs, making sure your family can survive with you.
Once you have talked about your financial goals with your young family, write them down. Then decide which plans are short-term 1-5 years, medium-term 6-15 years, and long-term over 16+ years. If you have multiple goals for each duration category, then prioritize the goals.
Budgeting is vital at any point in life, but it can play an integral part in a family’s finances at this stage. Your budget is particularly prone to change when you are a young family.
You will want to budget for the significant expenses that pop up. Having savings for medical costs that may be incurred due to an injury. Braces or glasses that may be necessary are another thing to start budgeting now for, not tomorrow. Setting money aside for college is another significant expense. There are a strew of other costs that may come up or that your family deems essential such as buying your child a first car, paying for part of their wedding, or upgrading furniture for the child.
The other aspect of a budget that financial planners will discuss with young families other than the one-off big-ticket items is the daily stuff that will change. Kids will start eating more, requiring sports equipment, participating in field trips, running through clothes, and costing you in plenty of ways you haven’t even imagined. So get acquainted well enough with your budget to know what areas you will cut back in or see how you will increase your income.
Rolling the dice on whether or not your family is protected from a financial catastrophe is not a place that should be gambling. Unfortunately, this is often missed when it comes to financial planning for young families. Protecting your family from a financial catastrophe can often be boiled down to two major things that can go wrong health and death.
Health insurance is fundamental to this, and most people will have this covered. However, these are the other questions when it comes to health people need to think about. For example, if a parent gets injured, will this affect their ability to bring in income or provide childcare? If a parent becomes permanently disabled, what financial impacts may this have? The key to avoiding financial catastrophe in these situations is using insurance. Short-term and long-term disability insurance can relieve financial strain so that your family can handle the health issue and not stress about money.
Death can come knocking at any time, and it is about one of the only sure things in life. Like in the section above, you can ask yourself a few questions. If a spouse dies, is the remaining spouse able to provide childcare and income? Will finding a job or building skills again take a while? Would you have to move into a small house to afford expenses?
Being savvy when it comes to estate planning can get complicated. However, the basics everyone should consider is having a will. A will can save enormous headaches with the probate court. Another significant benefit is you get to choose the guardian you want for your children and who your possessions go to, not the courts. Life insurance is another type of insurance that comes in various forms. Parents should consider what kind of life insurance suits their needs and how much coverage is necessary. A common rule is to have 10 to 15 times the family’s current income in a life insurance policy.
Parents need to understand that even if money is tight and they don’t believe they can afford any insurance beyond health insurance, policies can be as low as $10 – $20 a month for life insurance. As you get older, rates increase, so lock in those low rates now.
Financial planning is crucial for young families to achieve financial security and peace of mind. The key areas of financial planning for young families are setting financial goals, creating a budget, and protecting your family from financial catastrophe. However, keep in mind that young families need to consider other areas of personal finance. Getting your finances in order takes time and commitment, but the benefits are worth it. Financial planning can help you prepare for unexpected events, reduce stress, and achieve your financial goals. Therefore, it is important to encourage young families to start planning now and seek guidance from financial planners if needed. By taking control of your finances, young families can build a solid foundation for their future and enjoy the many benefits of financial security.