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First Financial Planning Steps for New Parents

Making the jump into parenthood for the first time can be thrilling. However, in order to provide the best quality of life for your family, it is important to begin financial planning as early as possible. This will help ensure your family will remain stable over the years and have enough saved for both expected events, like college, and the unexpected. Here are some ways you can start financial planning for yourself as a new parent.

Determine Your Net Worth

You should begin by taking full account of your current status. In other words, you’ll need to calculate your net worth. Net worth is everything of value you own (your assets, which include everything from cars to instruments to land) minus your liabilities (any debts you might have). To stay organized when calculating your net worth, create two columns, one for your assets and liabilities.

In the assets column, start listing anything you own. Be sure to include less tangible assets, like savings, your current bank account balance, and stocks and bonds. While many assets have corresponding values, some, like property, are in more constant states of flux depending on the market, so you’ll also need to figure out the value of your home. The easiest way to estimate your home’s value is to locate a comparable house nearby.  Use the internet, inquire with real estate agents, or search your neighborhood yourself to find houses of a similar size and age with similar amenities. Be sure to take location into account -- if your current house is in a good spot in a highly-lauded school district, try to find a property in that same district. You should also consider the time of year and the status of the market. Remember, the current estimated value of your house may not be what you paid originally. If possible, pick several comparable houses and average their sale prices to estimate the value of your own home. Add that value to your assets column and add the numbers together.

How Knowing Your Net Worth Helps Financial Planning

In the liabilities column, list all of your current debts, including credit card debt, student and personal loans, mortgages, car payments, and so on. Add up the numbers to find your total amount of current liabilities. Finally, subtract your total liabilities from your total assets to find your current net worth. While this may seem like a simple exercise, knowing your net worth can help design your financial plan for the next several years.

If you are below or near a total of $0, you should immediately take steps to reduce your current expenditures and increase your assets, perhaps by adding a stream of income or investing in more valuable ventures. Knowing your net worth also helps you estimate how much ready money you’ll have at a particular time, which can be extremely useful should emergency strike.  

First Steps Toward Financial Security 

As a parent, you’ll have to plan for your child’s future as well as your own. Start by taking steps to reduce your liabilities and pay off any lingering debts. Now that you have your finances organized, you can create a weekly budget. Be sure to include the cost of meals, memberships, and incidentals, as well as entertainment, like trips to the museum with your child. Even changing your behavior slightly by eating out one day less each week can greatly affect your overall monthly assets.

A 2014 study found that the average cost of raising a child to age 18 is almost $250,000, so every little adjustment can help. Saving years before you need the extra money will help ease the burden. The same goes for college planning-- begin saving as soon as possible. Even if you can only afford a small amount each month, getting into the habit of setting a certain amount of money aside for a college fund will help you feel more at ease over the years. 

Financial planning may seem like a difficult, complicated task. However, the key is to be organized. If you keep track of the flow of your money and take steps to spend less than you make, you will put your family in a good financial position for the future.

Photo Credit: Pexels.com 

Thewidow.net

This blog is written by Sara Bailey at her website www.thewidow.net who at 41 found herself a grieving single mom raising a son and daughter. Through her website she shares her experience and inspiration with others. 

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