Financial Basics for Starting a Family

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Starting a family is a major step forward for every adult. When you are about to start your own family, your financial focus shifts as well. While you could earn and spend your money as you'd like when single, you now have to make sure that your family's needs are met first.

Especially if you already have young kids, or children are on the way, it is essential to have a solid grip on your finances and to follow best practices to ensure a comfortable and financially secure life for your family.

Family life can be expensive: You must take care of your kids' needs, and you may even lose one income source if you or your spouse stays at home to take care of them. You'll need to hire babysitters, constantly buy new clothes for the kids, and be prepared for a whole lot more expenses.

It is no secret that a child can swallow up serious amounts of cash: Raising a child until she or he is 18 costs a middle-income household on average $245,340, according to this interactive chart by CNN Money -- enough to pay for a house or make a satisfying contribution to your retirement portfolio.

Staying in control
With a bunch of new expenses ranging from baby food to child care coming your way, it is essential to have a tight grip on your family's income and expenses. Child day care centers alone cost on average $972 per month for toddlers and $733 per month for preschoolers in the United States.

In order to stay in control of your finances you need to budget and track your cash inflows and outflows. You will soon understand how quickly you spend your money and on what items. Keep an easily accessible expense journal in which you write down every dollar that comes in and goes out.

Computer budget software and apps like Pocketsmith or YouNeedABudget can also help in getting a handle on your financial situation, and offer useful features such as bank balance forecasts and community support.

Staying in control requires you to budget. Budgeting sets limits on how much you can spend on items such as food, health care, rent or mortgage payments, child care, entertainment, etc. without breaking the bank.

Securing earnings power
If you're the breadwinner in the family, it is of great importance to protect your loved ones in case you die. This is an inconvenient topic, but you must face the fact that you won't live forever. Prudent financial planning requires that you buy life insurance coverage so that your spouse and children won't experience financial hardship in times of emotional distress.

Let an insurance broker assess which life insurance policies are right for you and your family. The universe of insurance policies is vast, and tailored solutions can be found fairly easily.

You also must make sure that your family is protected in case of an accident that would prohibit you from working again. Disability insurance is a necessity for every working family member, and even more so if you are bringing in the only income in the family.

According to information from the U.S. Social Security Administration, the average monthly benefit for disabled workers is just $1,146, and that might not be enough to finance your family's needs.

Source: U.S. Social Security Administration.

Saving for college
College tuition is expensive in the United States. According to Sallie Mae, American families spent $20,882 on average on a college education in the 2013-2014 academic year. College tuition has risen fairly steadily since the 1980s according to information from Bloomberg and the Labor Department, so it's no surprise that the college experience for today's students is far more expensive than it has been for previous generations.

The average amount paid for a college education in the United States has also risen a whopping 21% from $17,200 in the 2007-2008 academic year to $20,882 in 2013-2014, which makes college affordability indeed a dominant issue for the average American family.

Americans still rely heavily on their parents to finance their college education, as Sallie Mae's "How America Pays For College 2014" report notes. Parental income and savings paid 30% of college costs in 2014, while grants and scholarships exceeded this source of funding slightly with a share of 31%. Other notable finance sources for a college education in the United States include: student borrowings (15%), student income and savings (12%), borrowings from parents (7%) and relatives and friends helping out (4%).

The best thing you can do to facilitate a college education is to open a savings account when your child is born, and then make steady monthly contributions to the account over the next two decades.

Depending on how much you can afford to contribute (even $30 a month will make a difference if compounded for 18-20 years), your child will have a much easier time meeting college expenses with support from your savings cushion.

The Foolish takeaway
Starting a family, unfortunately, requires you to plan for the unthinkable. Protecting your family against financial hardship is a key responsibility for every spouse and parent.

Sound financial behavior and the use of insurance policies to mitigate earnings risk should be at the top of your to-do list. Budgeting and organizing your finances are additional responsibilities you will have to master in order to afford your family a carefree financial future.

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The article Financial Basics for Starting a Family originally appeared on

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