What New Parents Need To Know About Creating A Financial Plan
It’s never too early or late in life to become fiscally responsible, but if you haven’t already instituted a solid financial plan, there’s never been a better time to do so than when you become a new parent.
One of the first things you’re going to want to do is calculate how much assets are worth in order to determine the value of your home as you may have to consider selling if you outgrow your living space. While the first thing most new parents think they need to do is to start saving for college, financial experts don’t agree. Here are the other priorities you should save for first to prevent stress and financial ruin.
Pay Down Debt
If you’re struggling to pay your bills on time and using credit cards for everyday purchases like groceries, you’ve got to pay down your debt or you’ll be forever swimming in it. Student loans make up the majority of the nation’s debt — even more than credit cards and auto loans combined — so make an effort to consolidate multiple loans (if applicable), and change your repayment plan and payment due date in order to fit into your new financial plan. When it comes to credit card debt, start by freezing (literally) your cards so that you’re not tempted to use them. Make a list of all your debts and prioritize them. Make the minimum payment on credit cards with low interest rates and throw the extra cash at the cards with high interest rates in order to pay those down in a more expedited manner. Create a monthly spending plan to ensure you’re not living beyond your means and maximizing the opportunity to pay down as much debt as possible — consolidation loans and balance transfers are great options for getting out of the hole.
Save For Retirement
Statistics suggest that 65 percent of Americans save little or nothing for retirement, thus putting them at risk for struggling in their golden years. With that in mind, open an IRA, 401(k) or other retirement account if you don’t already have one offered by your employer. If it is part of your benefits package, make sure you contribute enough to your account if your employer provides a savings match so you can maximize the opportunity to save for your future.
Create An Emergency Fund
Even the best financial plans should be supported by an emergency fund to address those unexpected circumstances such as illness, injury, home and car repairs and loss of a job. A good rule of thumb is to have enough cash in a high yield savings account to cover three to six months of living expenses. It can take a while to save up that much, but don’t let that deter you from making regular contributions.
Adjust Your Insurance Policies
Insurance is an important part of any financial plan as it protects you and your family from a multitude of disasters and financial hardships. Make sure you adjust your health, car and homeowners or renters insurance within the first three months after your child is born. Life and disability insurances are important to help protect your family in the event that you pass away or are unable to work due to health or mobility issues.
Just because saving up for college shouldn’t be your first priority doesn’t mean it shouldn’t be one at all. However, it’s important to realize that almost no one pays 100 percent of a college tuition based on savings alone. The more realistic approach is a combination of current income, grants, scholarships, loans and savings. Stash your cash in a 529 savings plan that has tax benefits and lower annual contribution limits. Take advantage of online calculators to help you determine what you should be saving — and whether or not that’s enough to make a serious dent