What Young Parents Should Do with Their Money
There’s no expectation to have all your ducks in a row before the baby is born. However, after a few months when your family is getting organized and settled in, some financial planning should be done to ensure that you are successful parents. Even if it takes you a while to get all your finances in order, it is better to do it slowly than not at all. Starting with knowing all of the things you should be spending your money on as a young parent can go a long way. Here are a few things to put your money towards.
Contribute Into a College Savings Account
Don’t be fooled, time will fly by even with all the late night feedings and calming of temper tantrums. Before you know it it’ll be time to send your little one off to college. However, by contributing to a college savings account early on you can get a head start in paying for your child’s education. Do some research into figuring out whether or not you can receive a tax deduction by utilizing your state’s college savings plan, which typically is a 529 plan. Talk to a financial advisor about what fees will be associated with the plan and comparison shop to find one that’s best for you.
Although you might not have required a life insurance policy before giving birth, once a child comes into the mix putting money into a policy needs to be considered. This is because you now have a person dependent on your salary. In general, you must choose between two types of life insurance: permanent and term. Both will pay out a benefit if you pass away. At the minimum, you should have a life insurance policy that will take care of any outstanding debt that you may have.
Once your child has his or her first birthday, you should look at all of your insurance plans. Many people forget about the importance of disability insurance, which can be just as critical as life insurance in regards to ensuring that your child has a good life no matter what happens to you. Both long-term and short-term disability insurance guarantees that you have an income source if you are not able to work because of an illness or injury. Most young adults do not have disability insurance, and so as a young parent it is up to you to ensure that you have coverage in the case of a unforeseen health problem or injury.
Retirement is one of the most critical things to put money towards. Even as a young parent, you can never think about retirement too early. You do not want to have to move in with your grown children hitting retirement, therefore putting money towards a retirement fund is exceptionally important. When you have a young family, money can be a bit tight, and your retirement can seem off in the distance, but waiting for twenty years to think about retirement will cut your retirement money by 80 percent.
Having money set-aside for a rainy day or an emergency is also critical. When you are young, you have less room to deal with any uncertainty. For instance, if you lose your employment it may not be the end of the world, as you have no one to be responsible for but yourself. However, when you have a little one to think about it is much harder to live on Kraft dinner and ramen noodles.
An easy recipe to make more money is to have the skill sets that are in high demand. Even after you graduate college, it makes financial sense to invest money into a certification or degree that will further boost your income. Although you may not want to allocate money away from your child, keep in mind that once you can obtain a higher paying position, you can more readily focus on the financial demands of your child. If you have not earned a college degree, also know that being a young parent does not limit your from this possibility.
As your family expands, it is expected that you may want to have more space. That being said, a bigger house comes with a more significant price tag. A larger space costs more money, which means that it will take you longer to save for the down payment. However, by starting to save for your housing down the road you can avoid a 30-year mortgage and a huge hole burnt through your bank account. Setting money aside each month now for your future house is one of the best things you can do for your family. In the long run being able to obtain a 15-year mortgage instead of a 30 means you’ll save an enormous amount in interest, on top of cutting down the amount of time you are paying back your mortgage
Keep a Budget and Stick To It
Having a baby means that you must completely rethink the way that you spend and save money. A child really does change everything. Before having a child, you may have been able to be more frivolous and careless with your expenses because you only had you to think about. However, once your child is born they come with a much-increased daily cost, and you must also factor in all of the long-term saving goals that come with a child as well. Due to this, a budget becomes paramount. If you are not quite sure where to start than using a budgeting app on your Smartphone can be an excellent way to save money on your own terms.
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