Financial planning is important at any stage of your life, but it becomes exponentially more so when you have children. You’re not just taking care of yourself, after all, you have tiny lives completely reliant on you and your decisions. Here are a few tips on how you can do a good job with your finances when you only have one income to depend on.
1. Know Your Goals
Your first step toward financial freedom is to define your financial goals. It’s easy to float through life without setting these, thinking things will simply fall into place. While it’s true that you do learn to live with what you’ve got, knowing where you want to be will help you thrive.
Think about your needs now and in the future. One question for many parents is whether or not to invest in a larger home. Whether you decide to stay or move, you’ll need to calculate the value of your current home to determine your total assets to decide if it makes sense to move.
Another topic to push to the forefront of your mind includes your current vehicle — does it suit you or do you need more room for sports gear, friends, or to let the kids have their own row when things get tense? What about saving for college for your kids? How much do you want to save for retirement? You’ll need to think about all of this and more.
2. Set a Budget and Track Your Spending
While most people have a basic idea of how much they spend on housing, utilities, and cell phone bills, your everyday spending tends to add up, especially with kids. A quick meal out when you don’t have time to cook, extra diapers when you run out, a few trips to Target and all of a sudden you have more month left than money. Take a month and write down all your expenditures, including the amount and the category it falls in. This will give you a good idea of what you spend and help you set a typical budget for each month. Expenses for kids add up quickly, so it will help to stay on top of how much you’re spending.
3. Check Your Benefits
There is never a bad time to check that you’re taking the best advantage of all your benefits at work. Unfortunately, work savings and insurance opportunities are built to benefit a large number of people, so they may not fit your situation perfectly. This may leave some gaps in your coverage you need to address.
For example, what kind of life insurance coverage do you have through your work? Have you started thinking about estate planning and preparing in the event that something unexpected should happen to you? If your job doesn’t offer life insurance and you don’t yet have a policy, it’s time to start shopping around. You can get started by doing some simple online calculations that will give you a ballpark estimate of the monthly rates you’ll pay based on your age and health.
Furthermore, do you have long-term disability coverage, and if you do, how much of your salary will it replace if you should become disabled? Do you have the option to use a health savings account, and if so, how can you take better advantage of that? Check into these things and then decide how you want to fill in any gaps that may be left.
4. Build Up Your Savings
If there’s one thing we know about life, it’s that emergencies will happen. Your car will break down, your HVAC system will need to be replaced, and your kid will need a trip to the emergency room. To avoid putting these expenses on a credit card, work to build up a solid cushion in your emergency fund. A good general rule is to have three to six months’ worth of living expenses saved. This will give you peace of mind, reduce stress, and help you plan better. It is tough when your paycheck barely stretches from week to week, but even a small amount on each payday is better than nothing. Don’t get discouraged if it doesn’t grow overnight -- it will grow.
Life with kids is one of the best things you can ever experience. It can also be expensive, so it’s a good idea to plan ahead by following these basic tips. Getting your financial life in order will let you keep your focus on your kids — exactly where it should be.