Essential Tips to Achieve Financial Health as Parents
For many people, having and raising a child is the most significant change they will ever experience in life. It’s also one of the most expensive, with some estimations coming in at well into the hundreds of thousands of dollars. With that in mind, financial security is a must. Here’s what you need to know to get started.
This might sound like an obvious piece of advice, but many parents neglect it. As The Balance explains, it behooves you to reduce your debt as much as possible. Becoming debt-free is the first step toward financial independence and security. If you’re not able to knock out all your debt, it’s important to at least minimize your debt and avoid racking up further debt.
There are several effective strategies for paying your debt off, from starting with the smallest amount to free up that monthly payment to paying off the one with the highest interest rate first. Think through what will work for you, then map a plan to do it. That will come from a sound budget.
Develop (and regularly adjust) your monthly budget.
If you’re becoming a new parent, your expenses are about to change dramatically. Diapers, baby equipment, and health insurance are only the start. You will need to research all the potential costs of having a baby and develop a new budget that includes those costs.
This will help you determine which expenses you can eliminate from your spending so that you can stay on track with your finances. Note that you will also need to adjust your budget regularly as your child gets older.
Consider buying a home.
If your debt is under control, you might want to start thinking about investing. One of the most practical ways to kickstart your investment portfolio is by purchasing real estate. Renting might be cheaper in the short-term, but as Dave Ramsey points out, owning a home is a great asset that can prove much more valuable long-term.
If you’ve never bought a home before, you will need to research the local housing market to estimate what kind of down payment you will be required to make. These payments normally range from 3% to 20% of the home’s sale price, depending on what kind of loan you get. And if your down payment is less than 20%, you will have to buy private mortgage insurance.
Savings is another big deal when it comes to parenting. Start by building an emergency fund to cover things like unexpected medical bills, home repairs, and car repairs. $1,000 is a good first goal, but try to build the fund up enough to cover six months of expenses, which can provide a safety net for more expensive unexpected costs or if you or your partner loses their job.
Next, you will want to look into your options concerning retirement savings (e.g., 401k, traditional IRA, Roth IRA, etc.) and tally some numbers to see if you’re on track. After you get your retirement plans in order, you will want to begin establishing plans for your children’s college, such as starting a 529 plan and Gift of College program.
Parenthood is expensive, but it’s worth every cent. And if you do a little bit of planning, you can minimize the stress that comes with the financial changes. Be sure to reduce your debt as much as you can, and create a solid-but-adjustable budget that reflects the new expenses you will encounter. Also, plan for your and your children’s long-term future. Most importantly, remember that you will set a good example for your kids by practicing responsible finances.