If you’re starting a family, you may feel a profound sense of responsibility for their financial well-being even if you are part of a two-income couple. The points below can help you better prepare for this big change in your life.
Reduce Your Spending
The first step is to take a hard look at your spending and where you can reduce it. If you don’t already have a budget, you should create one. You can track your spending manually or using apps. In addition to what you may be spending on things such as food and entertainment, you could also check to see if you can cut back on other expenses. If you are paying off student loans, you might want to find out if you can refinance them with a private lender. This might cut back on your monthly payments and could reduce the overall debt if your interest rate is lower.
Build Your Emergency Fund
If you don’t have one at all, you need to start one. If you already have one, you need a bigger one. It’s always a good idea to have a cushion to deal with the normal emergencies that come up in everyone’s life, such as unexpected car repairs or out-of-pocket medical expenses. Once you have a child, this becomes even more important because when you start whipping out your credit card to cover those expenses, the interest rate associated with the debt can mean that costs start to mount quickly. Any kind of cushion is a good place to start, but you may eventually want to work up to having six or even 12 months of expenses saved in an account that you can quickly liquidate if necessary.
Start an Education Fund
College costs a lot of money, so you might want to think about creating a fund to start saving. One way to do that is with a 529 plan, which offers some tax advantages as long as you use the funds for educational expenses. You may want to look into the rules for your particular state. This is a great financial tip to start now because the earlier you start to save the better. These can be used for educational costs besides college, so even if your child decides not to attend, they may find the funds useful in other ways.
Have an Estate Plan
This is something people often put off because they don’t want to think about it, but it’s vital once you become a parent. Estate planning is not just about making a will although that is one part of it, and in the will, you can name a guardian for your child. This is also a good time to think about getting life insurance if you don’t already have it. To figure out how much you should buy, think about how much it would cost to replace your income until your child is an adult. You may want to talk to an attorney about whether setting up a trust for your minor child is a good idea and to help you prepare the necessary documents correctly.