Updated March, 2022
A guest post by Sara Bailey, Thewidow.net
When you first become a parent, your entire world revolves around the bundle of joy you now call yours. And with all of the love and affection you give and receive comes all the worries of the world. How will you pay for college? Can you afford to give your child the life they deserve?
You want to start thinking about your finances while your child is still young. While you don’t have a crystal ball to answer all of these questions, you do have the power to control your finances now, and that will shape your family’s financial future.
It starts by knowing your worth
You can’t put a price on yourself as a parent, but you can put a figure on what you are worth in dollars and cents. You have to know this number first so that you can be best prepared when it’s time to actually start planning where your paycheck goes. According to MarketWatch, your net worth is derived from determining what you actually own, minus how much you owe.
If you are like most people in the United States, the bulk of your net worth comes from the value of your home. Specifically, it’s equity.
Think about it this way: your property is valued at $200,000, and you owe $125,000 on it. That provides a net equity of $75,000. Add to this your $10,000 sitting in savings and the $25,000 in your 401(k).
To get to your actual net worth, you’ll have to figure in the ownership value of everything you own, from stocks and bonds to your personal vehicle, artwork, jewelry, etc. Then, you’ll have to figure out how much you owe in credit card and other debt.
Putting safeguards into place
Parents should never overlook putting financial safeguards in place for their children. One of these is to add your child to your health insurance plan. Chances are, your provider won’t contact you automatically, so you’ll have to do it on your own. You only have 30 to 60 days after birth to do this. Failure to add your baby may leave you on the hook for the labor and delivery and any health problems they are born with.
Next, it’s time to invest in life insurance. For most parents, a term policy of 20 to 30 years is more than sufficient. You’ll need to first figure out how much life insurance you need, which Allstate explains should be enough to cover your family’s future needs, including major life events and general living expenses, in the event of your untimely death.
You’ll also want to ensure that all of your accounts have your children or spouse named as a beneficiary, and that you have a legal guardian in place, such as an aunt or grandparents.
Budgeting can begin
Now that you know your financial worth, and have safeguards in place, you can start budgeting for the future. Your first priority here is to establish a family budget.
To do this, look at your needs and your income. If your income cannot support your needs, you may need to find ways to supplement your incoming funds or trim spending so that you have enough left over at the end of the month to start an emergency fund.
Once you have an emergency fund of at least six months’ worth of living expenses, you can start saving for your own retirement and your children’s college tuition. Fund your retirement first. It might be tough to stomach, but, as The Motley Fool explains, college is an optional expense.
If you cannot afford both, prioritize your own future first, and then teach your children about financial responsibility so that they are prepared to pay for their own education when the time comes. When you are one of the fortunate few who can save for both, do your research and find a college savings plan that will help you make the most of your money.
Planning for your children’s financial future is not just about how much money you can stockpile in the bank. Instead, the backbone of a successful plan is how well you safeguard the assets you currently own and prepare in case of an emergency. Lay good groundwork now, and the financial future for your family is bright.
