According to a study recently released by Northwestern Mutual, approximately 33 percent of Americans lack a financial plan. That means a third of us out there have failed to put in the work and planning necessary to secure their fiscal future and fund their retirement.
Life moves pretty quickly, and it’s easy for people to get caught up in excessive spending and a lack of saving. However, even if this sounds familiar to you, it’s no reason to adopt a fatalist attitude regarding money. Establishing a monetary plan today can be enough to get your financial house in order.
If you are a parent, making a financial plan is even more important. Kids are expensive; this isn’t exactly breaking news. The estimated cost of raising a child runs around $14,000– that’s over 30 percent of the median salary for workers in the United States. Crafting a financial plan gives you the security you need to take on this extra expense while preparing for your future. Planning your budget helps improve your physical and emotional health while raising your overall happiness. When you are a healthy and happy parent, you raise healthy and happy kids.
If you want to handle the expenses of raising a fortunate kid while also saving for future goals and retirement, use the following advice to get started.
What are Your Financial Goals?
Having your financial goals figured out is a great place to start. Most of us want to retire. But, when? The sooner you want to stop working, the more you need to start putting aside. Use this retirement calculator to get a good idea of how much you need to start investing to see significant returns by your goal retirement age.
Other financial goals for parents:
- Pay off debt
- Buying a house
- Purchasing a car for your child when they can drive
- Paying for higher education
- Taking family vacations
- Establishing an emergency fund
How To Establish a Budget
Once you know your goals and how much you will need to reach them, your family needs a budget that makes room for those savings amongst all of your fixed expenses. When planning a budget, separate your discretionary spending from the fixed things. To do that, subtract your fixed spending from your total household income. From there, you can use the 50/30/20 rule of spending.
The amount leftover should be about 50 percent of what you bring in. From there, 20 percent of your discretionary spending should be contributed to those financial goals you made. The remaining 30 percent can be allocated to the fun things you like to spend money on — going out to eat, taking vacations or enrolling the kids in extracurricular activities. Of course, you don’t have to spend 30 percent on wants. Cutting back on discretionary spending provides more money for your savings without having to increase your income.
Invest in Life Insurance
When you have children, life insurance is a necessity. Life insurance provides you with the peace of mind knowing that your family will be taken care of if you die unexpectedly. If your family doesn’t have to make a claim on your life insurance, it’s still worth the investment as many policies hold a cash value. When you reach retirement, you can sell your life insurance policy and free up cash for that point in time that can help increase your nest egg. Furthermore, if you have a large estate, buying permanent life insurance is a great way to invest in your family’s financial future. Once you die, your children will receive their inheritance without having to pay costly estate taxes.
Many Americans lack a financial plan, but it’s never too late to start one. If you are a parent, a good financial plan allows you to provide for your children both today and in the future. Decipher your financial goals then use the 50/30/20 rule to structure your spending toward them. As a parent, it’s also a good idea to work life insurance into your fixed expenses to protect your family in case of tragedy.