When you start a family, you’re taking on a great deal of responsibility that can end up feeling very overwhelming. While taking care of your family requires some advanced planning, it’s not as impossible as it may seem. In general, this involves keeping your spending down, reducing debt, and growing your savings to ensure you’ll have the resources to take care of any emergencies that do arise.
Start With an Actionable Budget
You won’t be able to build a financial future for your family without taking care of your household’s present finances. This involves creating a budget that ensures you can meet all of your financial obligations each month. Keep in mind that a late payment on anything, including your smallest utility bill, will result in a negative hit on your credit score. Your budget should allow you to make all of your payments on time and still leave enough left over for groceries, entertainment, and savings.
Pay Down Debt
The disposable cash you have left after paying your bills each month should be used to pay off your debts before you start using it for savings. The most popular method is the snowball strategy, which involves using your disposable cash to pay off your smallest debt first. Once that debt has been paid off, all of the money you were sending to the previous creditor should be used to pay off the next smallest debt and so on. This process gives you that much more money to pay off the next highest debt on your list.
Start Saving and Investing
Once you have paid off all your debts, that disposable cash should be divided up between contributing to a high-interest savings account and an investment account. Your savings account should be used for financial emergencies, vacations, and big-ticket purchases. This will help you reduce your need for credit cards and personal loans. The remainder of your disposable cash should be invested in a retirement fund.
If your employer offers a 401k, you should participate in that program as soon as you’re eligible. You should also start an IRA or self-directed IRA so you’ll have someplace to rollover your 401k funds if you ever leave your employer. A self-directed IRA is beneficial if you want to explore alternative investment funds that will help you maximize your growth of wealth. This allows you to invest in real estate and other nontraditional investments as a means of building a larger retirement nest egg.
Create an Estate Plan
You’re never too young to create a comprehensive estate plan, and you should do so as early as possible. An estate plan will help you protect your family and pass on your assets after your death. This is an important consideration because failing to have a will and other estate planning documents in place will leave your assets and minor children in the hands of the state. Your estate plan should also include powers of attorney documents to help you protect yourself if you become unable to communicate your wishes. A healthcare proxy allows you to pick someone to make medical decisions for you, while a financial power of attorney lets you choose someone to take care of your finances while you’re incapacitated.
Building a future for your family is a long-term strategy that will help you build something better over time. If you’re not saving as quickly as you expect, don’t let yourself feel discouraged. Talk to your investment advisor about growing your wealth faster or look for ways to save more money each month. As long as you’re persistent, you can grow the wealth you’ll need to ensure a brighter future for your family.