Two weeks ago my wife and I had our first child. This is an amazing time in both of our lives, no doubt; we are overjoyed, fearful, excited and completely in love. When the dust settles there is a lurking fear that I may not have enough money to provide and secure a financial future for my family.
How do I save for college? Should I even be saving right now amidst the current economic state? What amount of money is recommended for my family if I were to pass away? How on earth should I pay the new enormous medical bill? And so on...
The fact is, these questions are normal and honestly pretty fun to ask yourself (if you like financial conversations) or stressful (if you may be financially overwhelmed). My goal for this article is to help relieve the financial pressure that arises with the birth of a child and set a good budget for your family moving forward.
Disclaimer: this is a simple list for families and individuals that have just had a child. Of course, these guidelines apply for those without children but may be altered slightly. Our goal for this exercise is to get organized and set a strong financial foundation for you and your growing family.
Start with gathering your information in a list. What should this look like?
1)Budget. Start with a current budget. How does your current cash flow look? Can you see a trend in where your money flows? Visit here for a copy of my personal budget spreadsheet as well as the one used with our clients. Things to focus when budgeting:
1a)Income- It is important to have pre-taxed income (Gross Income) and then "take home" income (Net Income). Why? Primarily, you'll want to know how much you pay in taxes/ deductions annually, additionally I feel this give you a very accurate measurement when using your Net income for your spending ability.
1b)Debts- Categorize and combine all current debts. Credit card, home loan, auto loan, student loans, miscellaneous, etc.. Learn key ways to lower debt quickly and most effectively based on your personal style.
1c)Bills- Subtract all current bills, starting with largest to smallest. Find precise amounts to give yourself the best chance of creating a strong budget.
1d)Cash Assets and Savings- do you have a nest egg sitting aside? That's awesome! Depending on your objective you should either leave this alone or use towards time sensitive debts. This can be used for many goals but keep in mind that you have spent time saving this money, be wise and do not spend it if you do not have to.
2) Protect. Get protection- but only if needed! Mostly provided by your employer but it is crucial to have your own coverage- unless you plan to work until you die... (sorry so morbid)
2a) Life insurance- There is a sense of pride and a undeniable need to protect your new child when he or she arrives. There are many choices and considerations when finding the correct protection you need. Please, do not get swindled by crafty sales people.
2b) Disability Insurance- Around 80% of disability claims are non physical, meaning an illness can cause a major reduction in your income. Do not get caught without your income, remember that it is the key factor in paying for everything within your life.
3) Win. Set Goals that are S.M.A.R.T.- Specific, Measurable, Attainable, Relevant, Time-Based. I am such a huge fan of setting and achieving goals. A win is a win, no matter how big or small. Financially, it is amazing to win as much as possible! This is an important aspect to building life after a newborn but it varies greatly for each individual.
3a) Example of Financial SMART goal: Pay off student loan debt, Amount: $10,000, Goal timeline- 10 Months. Having your goals listed will keep them at top-of-mind for you which ultimately will lead to a well executed success story.
4) Execute. Take action for your financial success. Warning, time will slip away from you so take the time to make the proper moves to get your plan into action. If you need help staying accountable or building this plan, contact us today.
Now this goes without saying but it is important to know that it this is not a one size fits all. Feel free to make some changes that work for you or give us a call if you would like; even if your'e not an existing client, we love helping others. Our approach at Reed Financial Consulting is completely individualized to your style, goals and of course your interest.
Did we miss something? Let us know! We would love to get to know you, work together, receive feedback or feel free to just say hi!
For those of you that know me, you know that I love being a dad. I have been waiting for this moment for a long time and although the financial aspect is not everything but it will be a big part moving forward.