The day-to -day life as a mom and dad can be amazing on a personal level and terrifyingly stressful from a financial standpoint. The demands on your time and money can dramatically change over time, and many parents are ill-equipped to understand and plan for a growing family.
Here are a few important tips to consider to protect your family and to plan for the future.
1. Have the finance talk.
Sit down and iron out what your financial goals are. Do you want to be able to buy a new home in the next few years with your growing family? Are you going to need a new car with your newborn? Do you want to help pay for college in the future? If so, do both parents agree on how much you want to be able to contribute and do you know how and where to save? Do you know when your spouse wants to retire; and what he or she sees that time in life looking like?
Most couples never have these talks, and as a result don’t have a clear picture of where they want to go. Take the time to schedule time on the calendar two or three times each year to review budgets, goals, savings and any changes in your life. Make it a date night, and don’t hesitate to open a bottle of wine and make it fun.
2. Make a budget and track spending.
We tend to avoid the dreaded budget word at all costs, but not knowing how much you are making and spending each month can lead to worry and stress. Most couples know how much they spend on main things like a mortgage, car payment, utilities, cell phone and daycare. Most parents, however, don’t do a good enough job factoring in kids’ events, clothing, travel, medical expenses, random Target trips, dining out and the list of other items that can change each month. As a result, parents rarely have a real picture of how much they are truly spending each month, including unplanned expenses.
Watch what you spend on a daily and weekly basis, and you can begin to determine the hidden costs of parenting that add up quick. For one month, keep a piece of paper with your credit or debit card, and each time you use your card write down the date, amount and category of the expense. This can help you see the added costs of coffee, haircuts, alcohol and clothing, and help you realistically plan your expenses and budget.
Remember that not everything happens every month, but keep in mind the money you spend throughout the year on items, such as gifts for the holidays and birthdays. Divide the total by 12 to get a sense of how much you are spending per month on the expense. Spending $600 over the course of the year on gifts equates to a $50 per month expense if included in your monthly budget.
3. Review your work benefits.
Most people have some benefits through work that provide savings opportunities and insurance. These plans are not meant to be a personalized plan and parents need to understand coverage options to make sure there aren’t any gaps or shortfalls. Does your 1X salary in life insurance cover your spouse and help them cover all of the family expenses on his or her own if you were to pass away? Do you know how much income your long-term disability policy would pay if you became disabled? Is the benefit taxed and what are the definitions that make the policy start to pay out? Could you manage your monthly bills on a decreased income if you are to become disabled? Are there options to use a Health Savings Account or a Flexible Spending Account? Take the time to learn about your benefits and determine if there are areas that need to be addressed through personal planning outside of work.
4. Build up a savings cushion.
In life, things happen. From a trip to the emergency room for a child’s broken bone, to a job loss or a less-than-expected bonus, a family emergency or needing a new HVAC, there is always something. Be prepared and protect yourself from needing to use credit cards, or having to take out loans or borrow money. Prepare for unforeseen expenses and work towards building your emergency fund. Calculate your minimum monthly expenses (the items that no matter what, you have to still cover in the event of an emergency) and look to have roughly three to six times your minimum expenses amount in savings. As an example if your typical family expenses are $6,000 this may include dining out, travel, gifts and entertainment. Your minimum expenses may be $4,300 per month, so look to have four times that amount in savings, or $17,200.
Taking the time to talk with your partner about each other’s goals can ma clear picture of what you have in benefits through work, you can know what potential gaps you have. By reviewing expenses you know how much you truly spend each month and can help build an emergency fund to protect you from the unexpected.
Being informed and educated helps give peace of mind and can alleviate some of the stress that financial planning can bring, leaving more time and energy for keeping up with your little ones.
Court Creeden is the Founder of Parent Financial, a Charlotte-based financial planning firm that provides personalized financial plans for parents to protect their family and plan for their future. He has been featured in the Wall Street Journal, MSN Money, Dow Jones, and Time for his work with parents.