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Financial planning essentials for young families

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When taking care of an infant for the first time, you may need to learn new skills, such as changing diapers or moving quietly around the house. However, it’s important not to neglect your finances and retirement planning even if you’re focusing on becoming an expert at changing diapers.

Raising a child can be costly, but with proper planning and the right steps, it’s a challenge that can be overcome. Here are some factors to consider for your family’s finances with the arrival of a new child.

Start a budget

Having a baby involves various expenses, and it is important to consider them to adjust your budget accordingly. Initially, you need to plan for common expenses like buying diapers, formula milk or a breast pump, a car seat, a crib, baby clothes, and toys.

While you are likely aware of these items, it may be helpful to estimate their cost. The expenses will differ depending on your family’s circumstances. To give you an idea, the U.S. Department of Agriculture reports that families, on average, spend between $20,000 and $50,000 on their baby’s first year of life, depending on their location and income.

Build an emergency fund

Having an emergency fund is crucial whether or not you have kids. However, having a child means additional responsibilities to consider. It is essential to plan and prepare for these responsibilities beforehand. For instance, losing a job can be even more problematic if you have a child to support. This is because your child’s needs will not reduce, even if your financial situation declines.

Experts suggest having six to nine months’ worth of expenses saved in case of an emergency or more if possible. If you have not saved this much or cannot survive without work for at least six months, it is time to start building your emergency fund. One way to start is by reducing expenses, such as cutting back on streaming services or finding cheaper car insurance.

If your family is already running a basic budget and has no additional funds, it may be necessary to increase your income. You could achieve this by acquiring new skills or requesting a job promotion. Alternatively, you could consider starting an online side hustle. Whichever option you choose, it is important to regularly set aside some savings in a high-yield account.

Up your retirement contributions

It is common knowledge that when flying, one must put on their own oxygen mask before helping others. Similarly, it is wise to prioritize your retirement savings over helping others, including your children, as this ensures that you will not become a financial burden to your family in the future. By building a solid financial foundation now, you can secure your retirement and feel confident about your financial future. Additionally, prioritizing your financial stability means you’ll be better equipped to help others.

Plan for your child’s education

Once you have planned for your retirement, it’s important to start thinking about your child’s education. Typically, children will be in school until they turn 18. However, it may be unclear what path they will take after that. Consider your family’s history – your child may do the same if everyone has pursued a college education. It is wise to start saving now if you believe your child will attend college as education costs have increased. However, it’s important to prioritize saving for your retirement before saving for your child’s education.

To prepare for college expenses, you can use different saving methods such as 529 plans, UTMAs, and Coverdell ESAs. Although 529 plans are commonly used, you can research and compare other available plans. Starting to save early is crucial since college is costly.

Update insurance coverage

Finally, consider reviewing and updating your insurance coverage if necessary. If you don’t have life insurance, it’s a good time to get it. Though it’s not a pleasant topic to think about, being prepared is better than not being prepared. It might be beneficial to consult a financial advisor to determine the amount of coverage you require. Although it entails additional expenses, it will be worthwhile because you’ll be prepared for whatever the future might bring.

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