Starting a family is an exciting milestone but also an expensive adventure. It’s estimated that raising one child for 18 years will cost $280,000 on average. With a constantly-increasing cost of living and inflation, you should start securing your family’s financial future before it’s too late.
Recent surveys in the United States have shown that 70% of Americans suffer from financial stress. You can escape this stress by planning to protect your family’s long-term financial prosperity with a few simple tricks. Here’s what you need to know:
1. Look into wills and trusts
Estate planning helps secure your family’s financial future after your death. Many people prefer writing a will, but you can also create a living trust as it offers more security than a will and becomes effective in your life. Also, unlike wills, trusts don’t go through probate and give the beneficiaries more control over your assets after you.
However, there are different kinds of trusts. For instance, you can consider creating a Qualified Terminable Interest Property (QTIP) trust. Setting up QTIP estate planning means securing your spouse’s fiscal future for their lifetime. QTIP trusts work like irrevocable marital trusts, and your significant other will receive the income generated by your assets. But, unlike marital trusts, QTIP trusts also let you decide who receives that income after your spouse’s death.
2. Create an effective budget
If you want to protect your family’s financial future, focus on creating a budget and adhering to it. Create an effective budget that takes into account family income and monthly expenses. Doing so should help you find sinkholes in your family expenses so you can stop spending frivolously.
To create your budget, determine financial goals, track your income and expenses, and remove all unnecessary expenditures. Also, involve all family members in the process and ensure everyone sticks to it.
3. Cut all needless expenses
Studies suggest that nearly 40% of Americans overspend their money. This includes spending almost $1,500 a month on nonessentials and other avoidable purchases. Cutting most of these needless expenses can help you save a lot of money for your family’s future. For instance, an average family eats out 4 to 5 times a week. You can try dining out once a week instead and start cooking at home. Similarly, avoid impulse buying, take advantage of discounts, and don’t pay for needless subscriptions.
Cutting your expenses will help you save more and make better use of that money in the future.
4. Stay current on repairs
A family spends $3,000 to $4,000 a year on repairing and maintaining domestic devices and gadgets. This helps maximize their usefulness. Hence, repair household appliances sooner than later, and you won’t have to spend thousands of dollars replacing them. Take good care of your vehicles, check the home HVAC system for any problems, and invest in gutter cleaning, chimney sweeping, and other necessary home maintenance.
5. Create an emergency fund
Over one-half of Americans don’t even have $5,000 to fall back on in emergencies. You can protect your family’s financial future by creating an emergency fund and adding more money to it from time to time.
How much should you keep in this emergency fund? Calculate how much you need for your necessary expenditures every month and multiply it by six. For example, if your monthly living expenses are $5,000, saving $30,000 for bad days is smart. Keep these savings in a separate account and avoid spending them needlessly.
6. Regulate your family expenses
Tracking your family’s income and expenses is necessary for a budget to work. When a budget starts to work, your family saves enough for emergencies and can secure its financial future.
You need to track all sources of income, such as salaries, bonuses, dividends from shares, and what someone in the family earns from a side business. Then you must categorize your expenses into two types, i.e., fixed and variable costs. Fixed costs include your mortgage or credit card repayments, expenses you can’t cut back, whereas variable costs include expenses that can be decreased easily, such as clothing, food, hobbies, etc.
7. Get life insurance policies
Despite being an overlooked aspect of one’s family’s financial security, life insurance policies protect a family’s financial interests against a calamity. This calamity can range from chronic illnesses to any unforeseen accident. Adding another layer of financial security, a life insurance policy helps your family cover funeral expenses, outstanding debts, and living costs. You can talk to an insurance specialist to determine what insurance plan is good for your family.
8. Pay off debt
Outstanding debt can ruin your family’s financial stability and future plans. For this reason, you must plan to pay it off sooner than later. Paying off what you owe can also improve your credit score, which can be quite handy in case you need to take out another loan in the future. Here are a few simple suggestions on how to repay debt:
- Make a list of all your outstanding debt
- Cut your expenses to free up some money
- Talk to a credit counselor about clearing debt
- Start by paying off debt with the highest interest rate, or repay the smallest amount first
- Use automatic payment methods to pay off debt on time
- Consolidate high-interest debt into a lower-interest loan or credit card
9. Get some financial advice
Just 57% of American adults are financially literate. , If you’re part of this group of people, contact a licensed financial advisor to find the right path to financial security in this economy. A financial advisor can look into your income and expenses to suggest how to accelerate your journey toward financial stability. The advisor can recommend different tactics to do everything mentioned above and a lot more.
Life is unpredictable; you can land into a pickle at any moment and jeopardize your family’s future. Hence it’s never too late to take money matters into your hand and sort them out. Following the tips mentioned above will ensure there’s always something in the jar for a rainy day. Start now!