8 Financial Steps Every Family Must Take

by admin on 22/02/10 at 4:58 pm

Becoming a parent means getting your financial house in order. While you could let your finances slide a bit when you were single, you now have people depending on you. Doing some basic financial planning today can mean the difference between making your golden years happy and productive or stressful and uncertain. Whether it’s your your mortgage, insurance, or savings, every aspect of your finances should be reviewed to make sure your family is safe and secure.

Here are the 8 most important financial steps you can take for your family:

1. Buy life insurance. When you were a swinging single you didn’t have to even think about life insurance. Now that you have a family that’s depending on you, it’s imperative that you and your spouse get a life insurance policy. Term life insurance is usually sufficient and you want to make sure you get enough that your family can continue to live comfortably if you pass away, so think about at least $500,000 in coverage. If you’re healthy, term life insurance is not a huge monthly cost and it can really put your mind at ease. Use one of the many life insurance comparison websites to instantly get a rate quote.
2. Build up a rainy day fund. Life is unpredictable and having a family multiplies that unpredictability. Unforeseen medical expenses, automotive costs, or even natural disasters can quickly put a dent in your monthly budget. Take the time now to sock away at least three to five months worth of living expenses and put that money in a savings account that is accessible. But remember – this is emergency money only, so don’t go blowing it on a big vacation.
3. Review your health insurance. Medical expenses are eating up an increasingly huge chunk of the average American family’s income. It’s time to review your health insurance to make sure you have enough coverage and that your deductible isn’t too high. If you have children, chances are you’re going to the doctor on a regular basis. While having a high deductible is a good way to save money on health insurance while you’re single, frequent doctors visits will mean a lot of money out of your pocket. Review last year’s medical costs, see how much you had to pay, and adjust your deductible accordingly.
4. Buy a house. Although the housing market has been in a tailspin for the last several years, buying a house has traditionally been one of the best investment vehicles for families over the long term. Take advantage of today’s historically low interest rates to lock in a lower cost 30 year fixed mortgage. While it might feel like a stretch to pay for it now, chances are in 30 years you will be very happy about making the decision to buy.
5. Start a college fund. Sure, when your kids are toddlers college can seem like a lifetime away. But the years pass by faster than you can imagine, so start saving up for college now. Putting away even a small amount every month or quarter can allow the power of compounding to take hold and build up your savings over the long term.
6. Get a will. No one likes to think about death, but if it happens your family needs to be ready. Having a will prepared does not have to cost an arm and a leg – ask around to see which lawyers specialize in this type of work.
7. Plan for retirement. Saving for retirement on top of all your other family expenses can seem like an overwhelming burden, especially in the current rough economy. But like starting a college fund, time is your friend. The sooner you start saving, the longer your money will have to grow. Make sure you take full advantage of any 401k plans offered through your work.
8. Create a budget and track it. You can’t control your expenses unless you know exactly where your money goes each month. Use a program like Quicken or Mint.com to track your expenses and see what the trend is. Are you spending too much on entertainment or groceries? Find where the big expenses lie and figure out ways to cut back. You can also use these programs to monitor your budget month to month. The nice thing about a program like Mint (which is free, by the way), is that your accounts are linked together so there’s little to no manual entering of data. Login at anytime to check how close to your budget you are.

While these eight steps may seem like a huge amount of extra work, you don’t have to do them all at once. Take one item from the list to complete per week and eventually you will get through them all. By the end, you’ll know much more about your present financial condition and will be able to successfully plan for the future.

photo credit: Sukanto Debnath