|| Guest Blog : Jim McKinley ||
Financial planning is a basic part of being an adult, but things really do go up a gear when you start thinking about having a family. Raising a child is expensive – around $233,000 on average from babyhood to 18 years old – and bigger long-term costs like college can make the future look dizzying.
The good news is that planning does make a difference and that it doesn’t have to be too complicated. In this article, we break down the basics of family financial planning into three main categories: budgeting, saving, and preparing for the worst.
Budgeting is the key principle behind your day-to-day financial planning. A solid budget will allow you to stay on top of your family’s finances, making sure you don’t overspend and allowing you to build savings.
So the first thing you need to do is build a budget. Mint has a great step-by-step guide to building a family budget: Start by deciding your medium (paper or electronic), tally up your outgoing and ingoing money, and then start to subdivide it into specific categories.
Your discretionary spending is where you will be able to make the biggest changes. Some areas to focus on include:
Savings are the more long-term aspect of your financial planning, and they are absolutely crucial for financial security. At the very least, you should be saving for the following:
Preparing For The Worst
As a parent, you will need to have everything in place to keep your family safe and financially secure in case anything happens to you or your spouse.
If you don’t have a will, you should get one. You will have to decide whether you want to hire a lawyer (which can cost between $200 and $1000) or use an online product or template. The latter works great if you have a simple estate, but people with more complex cases should hire a lawyer. Make sure you add a guardianship clause to determine who will take care of the kids if something happens to both you and your spouse.
Life insurance is also crucial for keeping the family financially secure after you pass away. It can help pay off the mortgage and cover medical expenses, school loans, and funeral costs. To make sure you don’t overpay, use an online calculator to establish what you can expect to pay before you start shopping around.
If you are overwhelmed by the amount of money you will need to spend and save to comfortably raise a family, don’t panic. Small changes in your lifestyle will add up, and it’s okay to let your financial cushion build up slowly. Stay on top of your budget, put money away in savings every month, and have contingency plans in place. Soon enough, you’ll be prepared for whatever life throws at you.
As a former banker, Jim McKinley uses his background and skills to provide advice and valuable resources to anyone who needs help with their financial literacy. In his spare time, Jim spends time with his family and his dogs and he maintains his website Money with Jim.