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Financial Plan: Why Young Families Need One
If you are a young family or are looking to start a family soon, then you need to consider making a financial plan. A financial plan is not only important for you and your spouse to stay on top of your finances. But, it’s also important to the little ones you have or are planning to have.
If you haven’t come up with a financial plan yet, you should consider making one sooner rather than later. If you have children now, you know how expensive they are. If you don’t have any yet, then you will learn pretty quickly. Why not start early to help avoid some of the financial strain later on down the road.
Why Young Families Must Create a Financial Plan Early
Expenses will increase
First and foremost, having children is extremely expensive. If you haven’t started a family yet, then you may not be aware of how much money will be funneled into taking care of your little bundle of joy. Planning ahead is key to dealing with the increasing expenses.
You will lose a percentage of your income
Your family may also likely lose a percentage of income. This could be caused by one parent quitting their job to stay home and take care of the kids. Even if both parents decide to keep working, you are still going to need to pay for childcare which is really expensive. Then you need to consider that you will need to take more time off from work to bring your children to doctor visits and you will need to stay home from work when they are sick.
Saving for your children’s education
We all want what’s best for our children, and giving them a good education to equip them to go out into the world on their own is expensive. The sooner you start saving for your kid’s education the better off you’ll be financially and the better off your children will be too.
Your children are depending on you
Raising children is a big responsibility, and your children depend on you for everything. Even when they get older and don’t need you to feed them and change them, they still need financial security. What if something happened to you and you couldn’t work or worse, you were no longer around.
Primary Goals Of Your Financial Plan
- Manage the family budget and cash flow
- Saving and investing for the future
- Protecting the family from financial difficulties
- Minimising tax liabilities and debt expenditure
- Funding your children’s education
- Map out your financial future
More helpful articles for young families
Clever Money Saving Tips for Moms
Essentials To Include in Your Financial Plan
Now that you know how important it is to make a financial plan to make sure your family is protected; here are some things you need to put into place now.
The first thing you need to do is create a budget that includes everything you need on a monthly basis. A budget is the only way for you to truly control where your money is going instead of letting your money control you. The key to creating a budget is to include everything need.
Another thing you need to consider is giving yourself a bit of wiggle room in your budget. When you have children, unexpected expenses are going to come up all the time. By giving yourself some wiggle room in your budget to take care of these expenses, you are much more likely to stick to your budget.
Having an emergency fund is a necessity in any financial plan. Things happen all the time, if you have an emergency fund in place, you’ll be covered when something does come up. This will help you to cover those expenses so you can stay on budget.
An emergency fund is also going to keep you out of debt. Aim to build an emergency savings of at least 3 – 6 months worth of your monthly expenses. Of course, the more you have saved the better.
Helpful Tip: Keep your emergency saving in a high yielding online bank such as CIT Bank so your money grows faster. Who doesn’t love free money!!!
Disability & Health Insurance
Your entire family needs to have health insurance to cover medical expenses. When you have children, there will be many of these in your future, kids get sick all the time. You will probably be making quite a few emergency room visits so it’s best to be prepared.
In addition to getting sick, your kids need to have regular doctors visits, vaccinations, school & sports physicals and the list goes on, It’s best to prepare now before it’s too late.
You’ll also need to get some disability insurance for you and your spouse. Disability insurance will cover much of your expenses if you should happen to get hurt and can not work for a period of time.
Don’t make the mistake of not having an emergency fund just because you have disability insurance. This insurance will pay for most expenses but not all and it may take a little while before you actually get money so an emergency saving is still essential.
Wills and Life Insurance
Wills and life insurance are also a must. You need to make sure your family is taken care of in case something should happen to you. Don’t leave your families wellbeing up to fate. Both you and your spouse need to have this in place.
Make sure you are very clear about who you want to take care of your children in your will. Also be specific as to how the life insurance money will be spent to take care of your children. Of course, their basic necessities will need to be met. Beyond this, what will happen to any remaining money after the children are of age?
In addition to making sure your children are set for the future, you need to think about yourself as well. Make sure you are contributing to a 401K or IRA to have available to you once you retire.
If your employer matches any money that you contribute to your 401K, make sure to take advantage of the free money. This means you should contribute enough to get the full benefit of your employers match.
Lastly, are you going to pay for your children’s higher education or part of it? This is something to think about sooner rather than later. If you have enough money to help your kids out, the earlier you start the better.
On the other hand, if it’s a struggle just to make ends meet, this would be the first thing to forgo. Yes, it would be great to help your kids out in that respect, but not if it means putting your own financial future at stake. Make sure you are saving for retirement first.
Pitfalls to Avoid In Your Financial Plan
Taking on an excessive mortgage
If you have good credit and a high income, banks will approve you for a high credit limit. With that will come a huge payment and interest. Even if you can afford it, think of all the other things you need to take care of. Make sure these are in place. You should also keep your mortgage payment to 30% or less of your total income.
Taking on debt
When using credit cards to make purchases, make sure that you are able to pay the balances in full every month. Credit cards are convenient and there are benefits to using them. But it is also very easy to overspend without realizing it until the statements come in.
Neglecting long-term savings
With so much going on with a young family, long-term savings such as retirement and higher education could take the back burner. If you put off saving for these things, you might end up not having enough to cover them. The earlier you start saving, the less of a burden it will be on your financial plan.
There is a lot to think about when creating a financial plan for your family. The earlier you start the better off everyone will be.
My friends at All Finance Tax put together this great infographic that will be sure to help you create a financial plan for yourself and your family!!
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