There are several simple and important financial steps for parents to take. Even if you're not financially savvy today, starting a family might provide motivation to get your money on track. Personal finance is a tough topic, and some people seek professional help from a financial advisor. But if you choose not to solicit help from a professional, here are seven important and simple financial steps for parents.
1. Get a Cash Cushion
Building a cash cushion is one of several important financial steps for parents. Unexpected expenses will happen. And if you don't have money in a savings account, you might get caught in a financial jam or rely on credit cards, which can increase consumer debt. From each paycheck, save at least 10% of your earnings, and look for other ways to save money, such as only shopping when there are sales and using coupons.
2. Live by a Budget
When you have children, you have to worry about new expenses, such as daycare, diapers, formula and clothes. And unfortunately, if you don't have a budget, it's hard to assess what's coming in and what's going out. A budget is a spending plan that can help determine the best ways to use your money during the month. When you have a budget, you're more likely to have enough income to cover all your expenses, and you avoid overspending on non-essentials.
3. Get a Will
No parent wants to imagine their children growing up without them. But an untimely death can occur, and if you and your spouse die before your children reach the age of 18, it's important that you name a guardian for your children, or else the state will determine where they live. And if your children are older, you can create a will to determine how they should divide assets upon your death. This can alleviate any confusion and hard feelings among your children.
4. Get Life Insurance
Even if you and your spouse earn good money, it's important to have a life insurance policy. This policy not only provides your family financial support after your death, it can provide long-term income for your children. The death benefit can pay for their college, wedding, or create an inheritance.
5. Get Disability Insurance
If you become permanently disabled, you might qualify for state assistance. However, disability insurance provides monthly income when you're temporarily disabled. Talk to your employer to review your options. And if your job doesn't offer this type of insurance, speak with your insurance agent to get an individual policy.
6. Don’t Sacrifice Retirement Planning
Many parents are happy to pay for their child's college expenses. This is a wonderful gesture, but you shouldn't pay for college at the expense of saving for retirement. If you can do both, great. But if you have to choose one over the other, retirement planning takes priority. There are multiple ways to pay for college, but there are only a few ways to save for retirement
7. Teach Kids about Money Early
Don't wait until your children are in their late teens to teach them money management. Start early, perhaps when your child is five or six years old. Give them a weekly allowance, and then stress the importance of saving a little and spending a little.
As a parent, you have to deal with the cost of raising a family. Additionally, it is your responsibility to instill good money habits in them. This can be tricky, especially if you don't understand money topics yourself. But if you familiarize yourself with personal finance, you'll be in a good position to teach your kids about budgeting and saving. What are other important financial steps for parents?