Life changes when you have kids. A lot. This includes your financial life. Kids mean many new expenses, on top of an increased baseline cost of living. And these changes aren’t short term. This is why the following money management and financial planning steps to take before having children are so important.
The smart approach is to get yourself on solid ground and prepare for foreseeable costs ahead of growing your family. Help maintain control over your money situation, provide your family with a more comfortable life, and prevent future undue hardship with these financial planning steps to take before having children.
Preparing Financially for Having Kids
- Learn to live on a strict monthly budget. This doesn’t necessarily mean a tight budget, but everyone should know how to live on a budget that’s within their means. The ability to create a sensible budget and to stick to it are skills anyone can develop. Build up those skills before having kids, because budgeting only gets more challenging after little ones come along.
- Pay off your credit card debt. Don’t start the journey of parenthood saddled with high-interest debt. Monthly payments are a drain on your budget, and accruing interest every month works against your financial well being. Also, paying off your credit card balances on a monthly basis is a key sign of financial stability. If you need it, here’s some information about how to pay off credit card debt.
- Establish an emergency savings fund. This is another important sign of financial stability and security. Life comes with plenty of unexpected expenses, and even more once children are in the picture. Emergency savings help you face extra costs, loss of income, and other financial challenges without taking on debt. Here’s some more information about emergency savings funds.
- Create a parental leave fund. Unfortunately, it’s rare that employees get reasonable paid parental leave in the US. Find out exactly what your employer offers. Start saving up some money ahead of time to help get you through the loss of income you’ll face when you or your partner take time off from work following the birth of your first child.
- Start saving for retirement. You may be young, and retirement may be the furthest thing from your mind. But the earlier you start retirement savings accounts, the better off you’ll be when the time comes. Also, it’s harder to save once you have the added expense of raising children. Get started now, make retirement savings a built-in part of your monthly budget, and create the habit while you can.
- Start saving for college. Just like saving for retirement, saving for your kids’ college education should begin before you even have them. It’s easier to get it going ahead of time, the savings will compound more, and you’ll get in the habit of contributing.
- Have health insurance. Whether you get it through an employer or the Affordable Care Act Marketplace, your entire family will need health insurance coverage. This is essential to financial security and your family’s well being. Know where coverage is coming from and how much it will cost. Also, consider opening a health savings account (HSA). This is a tax-advantaged way to save for healthcare expenses.
- Buy life insurance. You don’t need a costly whole life policy. But one of the more overlooked financial planning steps to take before having children is acquiring an affordable term life insurance policy that covers at least 10 years of your income.
- Create a will. This is another one most people don’t think about early in life, and especially before having kids. But it’s always advisable to have a last will and testament, and you certainly want to have one written by the time you have children. The birth of a child is also one of the times to update your will. A will doesn’t necessarily only allocate your assets when you pass away; it can also address important matters like who gets custody of your kids in the event that both parents die.