Written by: Sara Bailey
One of the greatest joys in life, without a doubt, is having a family. However, children come with an array of expenses, ranging not only from daily needs, like food and clothing, but also the cost of club memberships, hobbies, and college. It is a good idea for parents to begin financial planning as early as possible to be prepared for any eventuality, both expected and surprising. Here are some ways you can get started.
Organize a budget
The most basic first step of any financial planning process is to organize a budget. Start by mapping out your monthly expenditures. This should include things like groceries, paper products, household necessities, the cost of dining out, and memberships. Add in regular payments, like utilities, car payments, and your mortgage. Next, create a second list with your income. Include your primary source of income as well as any supplemental payments you may receive. Subtract the expenditures from your income to find out how much profit you have to work with.
Find your net worth
It can also be helpful to figure out your overall net worth. The math is similar to figuring a basic budget. First, add up your liabilities, including taxes. Next, you’ll need to add up your assets. Assets are anything you own that has monetary value, even if they can’t be readily sold – examples include cash, investments, equipment, and your income. You’ll also need to figure out the value of your home when calculating how much your assets are worth. Keep in mind that your home’s value is directly related to what buyers are willing to pay for your home. This can fluctuate a great deal as the market changes over time, so begin by surveying your neighborhood, looking at average home prices over time. Take into account your neighborhood’s current status. Are there many foreclosures? Is it a nice neighborhood with landscaped yards and nearby schools or parks? Finally, compare your home with the price of equivalent homes in your neighborhood, preferably on the same side of the street or in the same general area. Once you’ve found an approximate value for your home, add that into your total net worth.
Cut expenses & reduce your debt
Regardless of your current net worth, it is generally advisable to try to increase your total monthly profit, as this will enable you to save and invest your money. The fastest way to do this is to take another look at the expenditures column of your budget. Look for unnecessary expenses, like unnecessary services or an over-reliance on expensive restaurant meals. Even cutting $5 from your daily expenses will add up to over a thousand extra dollars by the end of the year. This can prove incredibly valuable, particularly for new parents who have to purchase car seats, diapers, bottles, and toys for the first time. Every little bit counts. Similarly, whether it comes from credit card payments or residual school loans, it is highly recommended to eliminate debt. This will increase your quality of life, reduce your stress, and minimize the burden on your children. If possible, try to pay more than the minimum amount due each month.
Plan for the future
The extra money you save by cutting expenses is a great way to start saving for the future. You’ll want to have funds for your retirement as well as your child’s college education. Start as early as possible, and remember that it doesn’t mean you have to pour the majority of your monthly income into your savings – the more important thing is that you stick with your savings plan for the long term, even if it is a smaller amount. Meet with an estate planning attorney early on to draw up a will; in it, make sure you create a plan for the care of your children in the event something happens to you, and that you organize the distribution of your estate. (This is another reason why keeping track of your net worth is useful.) As your children get closer to college age, be sure to notice how your net worth has changed over time and how this might affect your child’s financial aid situation.
Financial planning begins with small steps. Start by assessing your own situation, analyzing how it will change with the addition of a child, and realistically planning for the future.
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