Starting a family is an exciting step but also a costly adventure. It is estimated that raising a child for 18 years will cost an average of $280,000. With the cost of living and inflation on the rise, 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 tips. Here’s what you need to know:
1. Review wills and trusts
Estate planning helps secure your family’s financial future after your death. Many people prefer to write a will, but you can also create a living trust as it provides more security than a will and becomes effective in your life. Also, unlike wills, trusts do not go through probate and give beneficiaries more control over your assets after you.
However, there are different types of trusts. For example, you may consider creating a Qualified Interim Interest Property Trust (QTIP). Setting up QTIP estate planning means ensuring the tax future of your spouse throughout his or her life. QTIP trusts operate like irrevocable spousal trusts, and your spouse will receive the income generated by your assets. But, unlike spousal trusts, RAQT trusts also allow you to decide who will receive this income after the death of your spouse.
2. Create an effective budget
If you want to protect your family’s financial future, focus on setting a budget and sticking to it. Create an effective budget that takes into account family income and monthly expenses. This should help you find any chasms in your family spending so you can stop spending lightly.
To create your budget, determine your financial goals, track your income and expenses, and cut out any unnecessary expenses. Also involve all family members in the process and make sure everyone sticks to it.
3. Cut all unnecessary expenses
Studies suggest that nearly 40% of Americans overspend their money. This includes spending nearly $1,500 per month on non-essentials and other avoidable purchases. Reducing most of these unnecessary expenses can help you save a lot of money for your family’s future. For example, an average family eats out 4-5 times a week. Instead, you can try eating out once a week and start cooking at home. Likewise, avoid impulse purchases, take advantage of discounts and do not pay unnecessary subscriptions.
Reducing your expenses will help you save more and put that money to better use in the future.
4. Stay on top of repairs
A family spends between $3,000 and $4,000 a year to repair and maintain household appliances and gadgets. This maximizes their usefulness. Therefore, repair household appliances as soon as possible and you will not have to spend thousands of dollars to replace them. Take good care of your vehicles, check the home’s HVAC system for any issues, and invest in gutter cleaning, chimney sweeping, and other necessary home maintenance.
5. Create an emergency fund
More than half of Americans don’t even have $5,000 to fall back on in an emergency. You can protect your family’s financial future by creating an emergency fund and adding money to it from time to time.
How much should you keep in this emergency fund? Calculate how much you need for your necessary expenses each month and multiply it by six. For example, if your monthly living expenses are $5,000, saving $30,000 for bad days is a good idea. Keep these savings in a separate account and avoid spending them unnecessarily.
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 their financial future.
You should track all sources of income, such as salaries, bonuses, stock dividends, and what a family member earns from a side business. Next, you need to categorize your expenses into two types, i.e., fixed costs and variable costs. Fixed costs include your mortgage or credit card payments, expenses that you cannot reduce, while variable costs include expenses that can be easily reduced, such as clothing, food, entertainment, 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 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, unpaid debts and living expenses. You can talk to an insurance specialist to determine which insurance plan is right for your family.
8. Pay off the debt
Unpaid debt can ruin your family’s financial stability and future plans. For this reason, you should plan to pay it back as soon as possible. Paying off what you owe can also improve your credit score, which can be very handy in case you need to take out another loan in the future. Here are some simple suggestions on how to pay off debt:
- Make a list of all your outstanding debts
- Reduce your expenses to free up cash
- Talk to a credit counselor about debt compensation
- Pay off the debt with the highest interest rate first or pay off the smallest amount first
- Use automatic payment methods to pay off your debts on time
- Consolidate your high-interest debt into a low-interest loan or credit card
9. Get financial advice
Only 57% of American adults are financially literate. If you fall into this group of people, contact a licensed financial advisor to find the right path to financial security in this economy. A financial advisor can review your income and expenses to suggest how to accelerate your path to financial stability. The advisor can recommend different tactics to do all of the above and more.
Life is unpredictable; you can land in a pickle at any time and jeopardize your family’s future. It is therefore never too late to take charge of money matters and settle them. By following the tips mentioned above, you will ensure that there is always something in the jar for a rainy day. Start now!