Here’s how to adjust your financial plan when you have a growing family.
Some babies are planned, and others are a surprise, that’s just the reality of it. If you’re planning for a baby or as soon as you know there’s a baby on the way, start financial planning! This is your chance to make simple shifts before you’re in too deep. My heart breaks when I see a young family struggling trying to keep their heads above water, giving their best while attempting to enjoy their young children. We all want to give our children the best, even more than any of us ever had. Here’s how you can help avoid falling into that trap:
Start with cash flow:
As soon as you’re planning for a new baby, you should start thinking about cash flow changes: Do I need day care? How much will clothing, food, diapers add to my expenses? Will our income be impacted? Is someone going to change their career and be a stay-at-home parent? Or perhaps shift from full-time to part-time work?
Maternity/Paternity leave:
Parents and babies need time to bond and adjust to their new world and having the ability to step away from work for a short time is important. Do you need to bridge the income gap for maternity or paternity leave? Income replacement sources during maternity/paternity leave isn’t consistent, employers, disability insurance policies all offer different benefits. And to add to the complication, states have different employer requirements and benefits. Sound challenging to navigate? Well, it is so you need to start planning to bridge a potential income gap.
Increase your cash reserve:
Answering the first two questions about cash flow can help you identify whether you should increase your cash reserve in anticipation of expenses or less income even if it’s for a short time.
Will there be higher medical bills in the form of co-pays, deductibles? Does your employer have an HSA plan you can use?
College education planning – I always ask clients what their experiences and values regarding advanced education are. Believe it or not, every family has different values regarding college education expenses, some parents want to pay for as much as necessary to provide the best possible education including private school and advanced education. While others, want their children to have some ‘skin in the game’ and be responsible for 100% or a portion of their education. Whichever is most important for you, we need to identify and set the goal projecting the cost and calculating the required savings rate. When cash flow is quickly changing, here’s how you can get started:
Does your employer offer a contribution? Does your state offer a savings bonus? Are there family members who will be gifting and helping you save? I often hear from parents that their kids have way too many toys and clothes. If you’re in this situation, encourage cash gifts from family and friends as contributions to college education funds.
Protection needs:
This is a time of highest risk for your family financial goals, their financial future is based upon your ability to earn a living. It’s important to help protect that risk with disability income and life insurance.
Read more articles by David Houbre