Children, while certainly an investment, are also a significant expense. CBS News estimates that families in the US spend anywhere between $174,690 to nearly $400,000 raising a child from birth through the end of high school. Don’t let these numbers scare you, however; with a little planning, as well as these tips presented by Covered With Love, you can ensure that your financial situation is ready for your new addition.
Knowing Your Assets
Your first priority when it’s time to start planning your family’s financial future is to get a handle on the present. Start the process by calculating your net worth, which is the difference between your assets and your liabilities. Assets are things you own outright, and liabilities are things you owe money for. So if your car is paid off it’s an asset; if you owe more than it’s worth, it’s a liability.
Your home is likely your largest investment and your largest liability, yet it doesn’t always rise steadily in value. In fact, home prices fluctuate with each passing season. Although real estate typically appreciates, make a point to regularly check similar properties so that you always have a rough idea of how much equity you have in your home.
The right health insurance is so important for young families. Take a hard look at your current health insurance and all of the associated benefits. What does it look like if you add a baby to the policy?
Life insurance is not something that parents should skip. If you still owe money on your current home and plan to send your children to college, you’ll want to look into buying a whole life policy to help cover these expenses if you were to die unexpectedly.
While you’re thinking about life insurance, it’s probably also a smart idea to go ahead and draft a will. You should also make sure that your children have a guardian in place to ensure their best interests in the event you are no longer able to do so.
Saving For The Future
As your children grow, so too do your assets and expenses. If you’re keeping tabs on your home equity, you’ll have a better idea of how much money you’ll have left for retirement and to pay for college. But home equity is not enough. You’ll also need to sock away savings. If your employer offers a 401(k), make sure you take advantage. CNBC explains most employers match savings, so that’s free money just waiting to be earned.
You can also get a head start on your savings by getting a side gig that you can easily do from home. Alternatively, you could start your own small business around a hobby or something you have a passion for. Just remember that starting your business will require some time and effort on your part (as well as taking care of things such as registering your business as an LLC with the state, for example), so make sure this is something you can commit to.
Part of planning for your financial future also means that you have to teach your kids how to do the same. Open a bank account in their names as early as possible. Even if you only deposit a few dollars each month, exposing them to financial responsibility early on can help them learn how to plan ahead as well as to respect the value of money.
The above is obviously not a comprehensive guide to managing your finances when you have children. However, the tips above can serve as a guide to help you make smart decisions for both you and your children’s futures.
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