We all know that starting and building a family is by no means a cheap or one-time outlay. It’s a longstanding big ticket item that will hold one of the top positions on your list of expenses until your children reach adulthood (and likely beyond!). Yet financial planning for young families is still all too often a neglected subject.
Establishing a detailed financial plan, or hiring a professional to do it for you, may not seem like the most pressing use of your time or money when you’re still adjusting to life with kids, and figuring out who you are in this new season of life. We get it. Balancing parenthood and your family finances can be a complex process.
From knowing where your money is going, to budgeting accurately and ensuring your family is well provided for, it’s a long checklist of planning considerations. And as parents you will commonly also face the burden of planning for different life goals simultaneously, such as education and retirement, which can further complicate the planning process.
Here at Great Oak we know these struggles only too well – not just through helping our clients, but because we have our own families, and have lived these struggles first hand. And with Gillian recently welcoming a new baby boy into her young family, we were inspired to highlight some key ways in which you can streamline your family finances and build successful financial planning for your own young family.
Financial Planning for Young Families
#1. Know What You Have and Where It Is
The best way to get started is to outline your finances as clearly as possible. What comes in, what goes out, what expenses do you need to save for, and where you can tighten the purse strings to help provide a financial buffer and build a healthy emergency fund.
With all your time and focus spent on raising your young family, it can be all too easy to lose sight of your money situation, and let the numerous threads of your financial life unravel into chaos.
As a young family, financial success starts with knowing exactly what you’re working with, and ensuring you keep on top of things. The dishes can pile in the sink, and laundry can be left unfolded, but your money really MUST stay organized. Learn more about how to fortify your finances as first time parents here.
And if you’re a stay at home mom or dad there are additional financial considerations to ensure you have well taken care of. But don’t worry, we’ve got you covered with our dedicated post on navigating the unique financial risks that stay at home parents face.
#2. Save Early and In the Right Way
You will have numerous financial goals and expenses to consider when a baby comes on the scene. In addition to daycare and health care expenses, another area that you’ll need to consider as young parents is future education expenses.
This is tough, as there is no correct answer for your approach. Some parents want to plan for their children to take on the debt associated with college costs. Others want to carry that burden entirely for the child. Most fall somewhere in between.
The first place to start is discussing your goal to provide for your child’s college costs. Then, you can create a saving plan that is appropriate for your goal. To help with your decision making we’ve got the perfect place for you to start by reading our post on the gold standard in college savings funds: The 529 plan, and your options for using funds from a 529 account.
#3. Don’t Make Bad Choices Based On Emotion
Our emotions play a pretty unavoidable factor in financial decisions, especially when it comes to our children. Somewhere along the way, parents started believing they need to provide everything for their children, every minute of the day needs to be planned and accounted for with activities, and we need to support our children for years financially.
But as much as we all want to give our children the best in life, it can’t be at our own expense. Overspending and getting into debt for the sake of costly gifts or sports activities is filling one bucket by emptying another.
This not only depletes your financial wellbeing, but it also sets an unhealthy example for your kids when it comes to managing their finances in the future. Like everything else with parenting, teaching financial responsibility is a continuous process. It’s best to get the financial ball rolling early, real early.
Above all else, you need to resist the urge to save for the kids’ education instead of your retirement. Ensure you understand how to balance your savings approach so that you don’t neglect your own future needs. Balancing saving for college while simultaneously also preparing for retirement is key to a successful financial plan that will serve ALL of your family.
Remember: You can’t get a loan for retirement. You must fully fund your own retirement. The biggest financial mistake you could possibly make would be to put all of your wealth building focus into your children’s future, without taking into account the many years you’ll face outside of the workforce.
#4. Prepare for the Unexpected
Planning for the unexpected is a real challenge (especially if you’re a stay ay home parent). As such, you should consider what financial actions you need to make to cover the unexpected. Is your current life insurance coverage adequate? Once a baby arrives, you will need to consider if your coverage is sufficient to provide for your newly expanded family.
You will likely receive life insurance solicitations for coverage on your new baby. It is very rare for there to be a financial need to purchase life insurance on a child, so we don’t advise taking out a policy. Instead, focus your attention on ensuring your own insurance coverage is appropriate both in type and the coverage amount.
We also always stress the importance of having an emergency fund at every opportunity. You can have the best intentions and the most detailed financial plan in place, but without one, you’re setting yourself up for difficulty. Your emergency fund allows you to move forward and overcome any obstacles.
#5. Start Building a plan for Future Wealth Transfer
Your estate plan will need attention once your baby arrives. You should ensure that all pieces of your estate plan, including your will, POA, and living will document, are updated. Your estate plan should also include provisions for guardians for your new baby.
Make sure you have a discussion with the people you will be naming as guardians; that is not a responsibility you want to be a surprise! Additionally, If you would like to provide for multiple generations of heirs, one of the best options to achieve that goal is through a Dynasty trust.
Build a Longstanding Financial Support Team
Whether you are starting a family or already have young children, developing sound financial habits and implementing effective strategies can directly impact your present and future well-being. Actively engaging in planning can help families establish financial stability while also safeguarding against unexpected challenges.
You will inevitably have plenty on your plate as new parents. If you need help deciding what financial moves are right for your family, we can help. Every family has needs and goals that are unique to their stage of life. We will help you prioritize. Together we’ll develop a financial plan to direct your financial situation to support your future vision. Get in touch and we’ll be happy to get you and your young family on track for a life of financial stability.