Family Financial Planning: Getting Started, Looking Ahead
The ever-increasing cost of living and raising children places a premium on short- and long-range financial planning. However, many young parents aren’t familiar with finances and don’t know where to begin when it comes to plotting out their family’s financial future. The sooner you can begin, the better prepared you’ll be when high-priced expenses like daycare come along and put a major crimp in your resources. If it all sounds overwhelming, try thinking of it as preparing for the major milestones in your family’s life.
Start saving
Everyone needs a healthy emergency fund, something set back for the proverbial rainy day. That need is only amplified by the addition of children and assets accumulated over the years. Illness, job loss or any other major financial setback can seriously threaten your financial stability and even your home if you’re unprepared. It is generally advised to have three to six months’ worth of living expenses set aside for emergency. Bear in mind that you can spread savings into different accounts, such as money markets, certificates of deposit or other kinds of investments.
Insurance
Insurance is a must when planning for your family’s future. Health insurance is absolutely indispensable as your family grows. A health insurance plan offered through an employer is generally the most convenient way to insure your family’s health. Don’t forget life and disability insurance, but make sure you understand the types of life insurance policies that are available as well as the cash premiums and values associated with them, which vary based on the kind of policy you take out. Be aware that you can sell a life insurance policy in retirement to free up needed cash. Disability insurance provides cash in the event that you or your spouse become serious ill or injured and can’t work.
Tax breaks
Tax breaks can be a tremendous financial benefit for people still trying to figure out how to pay for major expenses like daycare. There’s often no other alternative for couples with young kids who have to work every day. Yet the cost is often too much for young people who are still getting used to making a mortgage payment every month, and buying baby clothes and equipment. So the Child and Dependent Care Credit, which may cover up to 35 percent of eligible expenses depending on your income, offers young parents an important financial advantage. Many families also open a flexible spending account, an employer-sponsored option which allows them to set aside as much as $5,000 a year tax-free. Consult a tax advisor or financial planner to determine which option is best for your situation.
According to the National Funeral Directors Association, the average price of a funeral is now more than $8,500, while a viewing and cremation costs more than $6,000. Then there’s the cost of a casket, markets, flowers, and obituaries, which drives the overall price even higher. Like any other substantial expense, it’s wise to begin planning well ahead of time, even if it’s an unpleasant and intimidating subject to consider. Set up a joint bank account so your surviving spouse can access needed money, or a payable-on-death bank account, which pays your spouse upon your death. You can also use an existing life insurance policy or a savings account set up with a funeral home as the beneficiary.
Effective financial planning takes some learning and even trial and error. The key is to begin as soon as possible because the years pass very quickly, and parents often find themselves in a financial crisis, unprepared for something they knew they’d face eventually. Taking steps now can ensure your peace of mind and give your family the security it needs.
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