I’m a Financial Advisor: 8 Ways To Factor Your Kids Into Your Financial Plan
Financial planning is an ongoing process that doesn’t stop when you have kids. If anything, having kids should be seen as an opportunity to review your financial situation and goals and update your overall plan to include your growing family.
When you have a sound financial plan, you can rest easier knowing your family is prepared for the increased household expenses — and that your children’s future is secure.
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But how do you get started?
GOBankingRates spoke with Jen Reid — a financial planner and founder of BASE Financial Planning — and Isabel Fliss — a financial advisor at McKague Financial — about how to factor your kids into your financial plan.
Assess and Update Your Budget
Financial planning with kids starts with finding new ways to manage your money and have a budget.
Your expenses are higher once you have kids, and what you’re spending money on is bound to change — both now and as your kids grow. So, you’ll need to factor that into your new household budget. If you don’t have a budget, now’s the time to make one.
“Most couples that have higher, more flexible incomes [aren’t] accustomed to having a budget or paying attention to what they are spending because there is so much cushion for them to spend and still have savings, but having kids starts to take a large portion of your income,” said Reid.
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“If saving and budgeting weren’t already established practices within the household before having children, it could be beneficial to automate savings by setting up regular contributions to a savings account, aimed at building up an emergency fund or college savings plan,” said Fliss.
You can use budgeting apps or online tools to help you get started. As your kids grow, you can get them involved by including visual aids like charts, graphs, or savings jars to make the concept of money easier to understand.
Determine Your Income Situation
“Deciding to leave work to raise your kids is a huge part of the financial planning process with clients,” said Reid. Whether you take leave from work or not, take some time to discuss your options with your partner — if you have one.
Depending on your situation, you might have to add additional income streams to account for your growing family. But whatever you do, try not to make any major changes to your retirement plan that’ll set you back financially.
Consider Childcare Options
The cost of childcare has risen significantly over the years, and will likely continue to do so. So, make sure you factor this into your financial plan.
“When planning for childcare expenses, it may be beneficial for the parents to assess the expenses associated with different childcare choices accessible in their locality,” said Fliss. “These choices might encompass hiring a nanny, enrolling in daycare, selecting in-home care, utilizing babysitters or engaging an au pair.”
Before choosing any of these options, calculate any associated fees — including cancellation fees. Fliss also suggested working with other families in your area and dividing childcare duties amongst yourselves to ease the financial burden.
Get Life Insurance
“Having life insurance is a huge piece of your financial plan if you have children,” said Reid. “If you or your spouse’s income were to no longer exist, how would you be able to provide for yourself and your kids? Putting term life insurance that is 10-12x your income will help cover that financial burden if anything were to happen.”
Shop around for different life insurance policies until you find the one that best suits your family’s needs.
Set up an Estate Plan
If you don’t have an estate plan, now’s the time to create one. That way, if you have any assets — like properties or other investments — things will be much less complicated if something happens to you and you leave an inheritance behind.
“Once children enter the picture, it becomes essential to designate them as beneficiaries on all relevant financial products,” said Fliss. “Additionally, crafting a will is advisable, [since it allows] parents to designate a guardian should anything happen to them.”
Review Your Health Insurance
“Regarding insurance, parents must review their health insurance coverage and benefits,” said Fliss. “Pregnancy can incur significant expenses, particularly in the event of complications during pregnancy or childbirth.”
Given this, ensure your family is as covered as possible. Once you have your kids, look for the best health insurance option for them as well.
Have Clear Goals
You’ll want to ensure your kids are financially set, securing your financial well-being is important. One way of doing this is to set clear goals — for yourself and your children.
For example, do you want to set aside a certain amount of money for their future education? Are you planning to buy a home and need money for a down payment? Setting these goals can help you stay on top of your finances and ensure your family’s financial future.
“Make sure that you’re prioritizing your financial well-being first (ex. paying off debt, saving for retirement),” said Reid.
You can do this by factoring into your budget the extra expenses that come with having kids before or after. You can also do it alone, with a partner, or with professional guidance.
Establish or Grow an Emergency Fund
Many financial experts suggest having at least 6 months’ worth of living expenses for emergencies. But when you have kids, your cost of living increases. So, even with an emergency fund, you’ll want to contribute more to it to account for the higher expenses.
“Many aspects of life and financial planning may change to the decision to have children,” said Fliss. “Establishing an emergency fund is an excellent method for preparing for unforeseen expenses and income fluctuations.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: 8 Ways To Factor Your Kids Into Your Financial Plan
