How to Start Securing Your Family's Financial Future
If you’re anything like me, the first emotions you felt when you found out you were having a baby were probably excitement and joy.
And if you’re anything like me, those good feelings were quickly followed by “Wait, how the heck am I going to take care of a baby? I have no idea what I’m doing!!!”
Some of the biggest fears I had were on the financial side of things. And in my work as a financial planner, I hear the same concerns from the other new parents I work with every day.
How much is a baby going to cost? Should I be saving for college? What about insurance? Buying a house? Investing? How do I prioritize and find the money for all of this?
It’s a lot to take on, especially when money is only one of about 100 new things you have to deal with.
But with a little bit of planning you CAN make good decisions, take control of your financial situation and take care of your family.
In this three-part series I’m going to show you how to do just that by handling one priority per month for your entire nine-month pregnancy. And if you’re already further into your pregnancy or have a few young kids, don’t worry. The same process can be followed at any point.
Let’s dive in!
Month 1: What’s Your Why?
You’ve probably gotten a lot of advice over the years about what you should be doing with your money.
But have any of those people ever stopped to ask what you want your money to be doing for you?
While there are absolutely some good principles and rules of thumb you can follow, the truth is that there are no “right” or “wrong” financial decisions. There are only decisions that are better or worse for the specific things you want to achieve.
So before you make a single financial move, I would encourage you to step back and ask yourself “Why?” Why do you care about money? What are you hoping it does for you?
Here’s a five-step process you can follow to help you answer those questions. If you have a spouse or partner, I would encourage you to get him or her to participate in this as well. The more you collaborate, the easier it will be to work together toward a common vision.
- Visualize: Imagine yourself a few years down the road. Imagine that you’re happy. What does your life look like? Where are you? What kind of family do you have? Who are your friends? What do you do for work? What do you do for fun? Allow yourself to create this vision without any kind of limitation and write down everything that comes to mind.
- Prioritize: Put the list you created in some kind of priority order. You don’t need to live by this order forever, but having some idea of which things are most important will help you make decisions later on.
- Communicate: If you’re doing this with a spouse or partner, this is the time to come together and talk things over. Share your lists and focus on common ground you can work towards together.
- Un-prioritize: Take note of any things you didn’t include on your list. These are things you can intentionally divert time, energy, and money away from, so that you have more resources available for everything else.
- Specify: Turn some of your highest priorities into SMART goals. Setting a realistic dollar amount and timeline on each goal will make it much easier to both start taking action and measure your progress along the way.
Month 2: Create Your System
Every financial “expert” says you have to create a budget. And they’re wrong.
You don’t need a traditional budget to take control of your money. But you do need a system that allows you to be purposeful with how you spend and save.
- Track your spending: You need to know where your money’s going now before you can make purposeful changes going forward. Tools like Mint.com and YNAB can help you automate this, or you can use your own spreadsheet.
- Automate your bills: Rent, electricity, minimum payments on debt. All the necessities should be automated so that you don’t have to worry about whether they get paid on time.
- Automate your savings: This is the way to make consistent progress towards those goals you set above. I like to schedule these for right after my paycheck is deposited so the money is out of my account before I have a chance to spend it.
- Build your buffer: This is the big goal for Month 4 (more detail in Part 2). A savings buffer allows you to handle unexpected expenses without your system falling apart.
- Make it a habit: Set a calendar reminder to check back in and categorize any new spending every one to two weeks. Set another reminder to check in with your spouse or partner about your overall goals every one to two months. Your situation, goals and values will change and your system will need to adapt along with them.
Month 3: Prepare for Change
No matter what your finances look like now, they will almost certainly look different once you have a baby.
The good news is that you don’t have to wait to find out what those changes will look like. You can start making them now, before the baby actually gets here, and put yourself in a great spot to handle the transition well.
- Estimate your change in income: Whether it’s temporary due to maternity or paternity leave, or permanent because of a switch to a single income, your income will likely change after your baby is born. Estimate your expected change in monthly income.
- Estimate your change in expenses: There are several tools out there to help you estimate your first year baby costs, like The Bump’s Baby Budget Checklist. Use them to make the best guess you can for your personal situation and divide it by 12 to get a monthly average.
- Calculate the total change: Combine your change in income with your change in expenses to get a total estimated monthly change.
- Start saving the difference now: Start putting that total amount from Step 3 into a savings account each month. That will help you get used to your new budget and build up some savings that will make the transition much easier.
In Part 2, we’ll go over the steps you can take to create a secure financial foundation for you and your family.
Want more? For even more detail, check out Matt’s 10 week course that walks you step-by-step through every major financial decision you have to make as you start your family. Matt’s expertise comes from his personal experience as a new dad and his professional experience as a fee-only financial planner working with other new parents. The Bump readers get a special 20 percent discount, so take advantage here: 10 Weeks to a Better Financial Future.