When you’re starting a family, planning for its financial future is among the most important—yet challenging—responsibilities you’ll experience as a parent. If you want to help your children pay for college, for example, or maybe you plan on buying a bigger home to expand your household, you know that the earlier you start saving, the better the outcome!
As a young family, it’s normal to feel like your finances are pulling you in all different directions. So, it’s understandable if you’re unsure of where to begin.
Step 1: Create a Family Budget Plan
Creating a family budget helps you prepare for life’s many curveballs. It also provides you with peace of mind, so you spend less time worrying about paying bills and spend more time together as a family.
Let’s also not forget that creating a family budget now will help instill good financial practices into your children’s savings/spending habits that will, in turn, benefit them as they get older and start their own families.
5 Family Budget Planning Tips
To help you get started, we’ve compiled a few tips to help you start planning and start saving for all of life’s little—and big—moments ahead.
Make It a “Family” Budget
What we mean is, make sure that each member of the family plays a role in creating the budget. You can do this by holding a family meeting to discuss your current financial situation and your personal and family goals.
Involving kids, depending on their ages, into these discussions can be a powerful motivator for you to work towards your financial goals, too, while teaching them healthy financial habits, too.
Ask everyone to write down on paper at least 3 goals they have for the future. Some may include:
- Having another child (or sibling)
- Taking a family vacation
- Buying a new house
- Adopting a family pet
- Joining a school’s hockey team
- Purchasing another vehicle
- Taking music lessons
Openly discuss your goals and dreams with one another, so you can work on creating a financial plan that will support you in achieving them.
Separate Your Expenses
This part sounds scary and complicated, but once you’ve openly discussed your goals and financial situation, it’s time to see where some of your money is going each month.
Begin by identifying all of your outgoing expenses. It’s recommended that you separate these into two categories:
- Essential expenditures: Mortgage or rent; groceries, utilities, prescriptions, insurance, clothes, gas, etc.
- Non-essential expenditures: Monthly subscriptions (i.e., Netflix, Hulu, Blue Apron, etc); takeout/delivery; electronics; alcohol; etc.
By doing this upfront, you can easily identify an area (or two) where you’re excessively spending on items you can live without. Spend time finding places where you can cut back, especially if you have outstanding debts. Any money you free up is money you can invest back into your family.
Include an Emergency Fund
Creating a rainy-day fund is more crucial than you realize. This is especially true if you have outstanding debts, as it helps break the cycle of relying on credit cards to cover unexpected expenses.
By building an emergency fund into your family budget, you’ll provide your loved ones with a safety net for if, and when, the unfortunate happens, such as losing a job, having to replace a car, becoming ill or injured, etc. Your emergency fund should be able to cover at least three-to-six months of your family’s expenses to ensure your family can afford the necessities.
Don’t Ignore Your Debt
If you have any outstanding debts, such as credit card debt or student loans, make sure you are actively working to pay down your debt and it’s represented in your budget plan.
By reducing the amount of debt you have, you free up money in your budget that you can allocate in a way that better benefits you, your family, and your financial future. It’s important to be aggressive in paying off your debts, so that you give yourself more opportunities to save and invest in your family.
Keep the Future Your Focus
We already mentioned planning for the unexpected, but in addition to making sure your family’s covered if you were to become ill or lose a job, you also want to make sure that your finances are in order in the event of your passing.
There are two aspects that you’ll want to consider when planning: life insurance and estate planning.
- Life Insurance: No matter how healthy you are, enrolling in a life insurance plan is the best way to protect your family, especially if they heavily rely on your income to pay for necessary expenses. Paying for life insurance is an affordable way to safeguard your family, and, in most cases, a basic-term life insurance plan will suffice.
- Estate Planning: A key part in planning for the future is completing the proper estate planning documentation. Most often, this includes creating a clearly defined will, designating beneficiaries, and protecting your assets. A financial planning advisor can walk you through the crucial documents you should have in place to assure your family is protected.
Plan to Contribute to Retirement
When debts are paid off and your affairs are in order, there’s another important component to include in your budget spending: your retirement plan. Putting money into a retirement plan (e.g. 401k, Roth 401k, 403b, etc.) is one way to protect your family’s financial security for the future. The sooner you begin contributing to your retirement, the harder your money will work for you—earning you interest as it sits in the account.
In many cases, employers offer to match contributions up to a certain percentage; take advantage of any contribution matching your employer offers, as it is free money in your future pocket.
It’s important to make healthy contributions to your retirement before considering other investments, like college savings for your kids, as there are financial aid or student loan options that are available for higher education that aren’t available for retirement. You can always consider establishing a college savings account (e.g. 529 College Savings Plans) for your kids, where you, friends, and family can deposit money as birthday or holiday gifts that don’t initially take away from your retirement savings goals.
Need More Family Budget Planning Tips?
Working with a financial planning advisor can help alleviate some of the burdens of financial decision making.
At Focus Financial, our experienced team of financial planning advisors can help you create an individualized, comprehensive financial budget plan that is tailored to your family’s needs and goals. Your family’s financial health is our priority, and we are here to help you navigate these tough financial decisions.