Financial planning is important in making sure that you have enough money to live comfortably, and this is especially so when you’re starting your own family. Having a spouse or children means that what happens to your money no longer affects just you.
Good financial planning can help you to reach your life goals, prevent spiraling into debt, and survive unexpected emergencies. In the Report on the Economic Well-Being of U.S. Households published by the Federal Reserve Board in 2017, it was found that almost half of America could not afford an unpredicted $400 emergency.
Professionals who specialize in helping others avoid these situations are known, aptly, as financial planners. Financial planners are typically engaged by those with more complex financial situations, however, anyone can benefit from their guidance on how to better manage their finances.
Many people engage their services when undergoing a big change in their lives, such as getting married or divorced, or having children. Some financial planners also specialise in recommending family life insurance, which are schemes that are specially designed to protect a family’s finances.
Understanding the basics of how to manage your family’s finances is not difficult, and can be summarized into a few stages.
Set Goals
The first step in any plan is to think about the goals you want to achieve. Couples who are getting married should have proper conversations about their financial goals to make sure they’re on the same page. Two people living together will inevitably have their expenses and earnings interknit in some way, and knowing that you’re working towards mutual goals can make things much simpler.
Examples of realistic goals include paying off debt, setting up emergency funds, saving for a house and so on. Don’t forget to take into account the funds needed to support children should you plan to have them in the future, as well as retirement reserves. Goals can also include short term ones like saving up a certain amount every year for a vacation.
Track, Budget and Save
After setting clear goals, set your plan into action to reach those goals. Tracking your finances allows you to see clearly where your money is going, which is particularly useful when finances start to become more complex as your family grows. Depending on your preference, tracking can be done on spreadsheets, online programmes or pen and paper.
Pre-designed templates range from very general to very specific. If you’re just starting out, you might want to start with a general one before zooming in on certain details. One way to analyse your expenses is to separate them into necessary spending vs unnecessary spending.
After looking at your spending pattern, allocate budgets and stick to them. For instance, if you realize that you’re overspending on new clothes, set a monthly spending limit for clothes and keep to it. Budgets can also be drawn out at the beginning of big lifestyle changes, for example the amount of money set aside for allowance when a child begins schooling.
Apart from planning how to spend, planning how to save should also be discussed. This can be customised according to your goals and current income situation. Saving requires discipline and many of us might underestimate how important it is. Some are tempted to live from paycheck to paycheck, but that’s really not a great idea when you start to have a family.
Invest and Insure
Many financial companies provide saving plans, an option that is lower-risk than traditional investments, but provide higher interest rates as compared to keeping your savings in the bank. For those who can afford higher levels of risk, putting some money into investments is also a great way to grow your savings. With sufficient research and effort, investment can play a crucial role in reaching your financial goals.
Insurance is another essential item to keep in your budget. Basic policies like life insurance, disability insurance and health insurance can really help to cushion the blow on your finances in case of unexpected emergencies. Should an accident happen to any one family member, others in the family will have a safety net to fall back on. Consult an insurance agent to see what works best for your family.
Planning for Children
Ideally, financial planning for children should start even before they are born. Having a child, especially for a new couple, will drastically change the way money is spent. Funds will be needed for prenatal care, delivery, and childcare. Parents should have sufficient savings in the bank and have time to get used to a new budget before the child arrives and life becomes hectic.
From there on, other long-term considerations might include saving up for your child’s college fees. Surveys show that more than half of college students struggle to pay for their education. Even amongst parents who planned to set aside savings for college fees, 36% said they could not maintain the funds due to financial problems caused by the pandemic. Thorough planning and starting early can help to mitigate these problems in the future.