3 Steps to Set Your Family Up for Financial Security

The hustle and bustle of daily life can make it difficult for parents to see the big financial picture. However, making finances a priority now will set your family up for future success. You will rest easier at night knowing you have a plan for the next few months, year, 10 years, retirement and in the event of death, disability or catastrophe. Here are three things you should do as soon as possible to put you on the path to financial security:

1. Craft a Monthly Budget

A solid financial plan starts with a budget. Budgeting forces you to evaluate your expenses and income. It will force you to look at where you spend money and where you could be saving, and help you to evaluate what’s important. A budget will not only set you and your family up for success, but it will also enable you to tell your money where to go.

A good budget will show you the status of your debt each month. You will be able to see whether your debt is high compared to your income and how quickly you’re tackling debt, which can help motivate you to decrease your debt. The snowball method is tried and true. Attack the lowest debt with all extra income while paying the minimum amount on all other debts. Once that first debt is eliminated, take that payment for the smallest debt and apply it to the next.

Creating a budget and sticking to it is especially important if you plan to buy a house at some point down the road. For example, you could budget to save a specific amount for the down payment, which you should save up for first before you begin house hunting.

2. Get Insurance Coverage

Insurance is essential. It provides a plan for you and your family regarding the future and the unexpected. You likely have home insurance (or renters insurance), health insurance and auto insurance. It’s also worth investing in the following:

• Term Life Insurance — This coverage provides a financial payout to your beneficiaries in the event of your death. It’s particularly essential for families who rely on the income of one or both parents to meet their basic needs. Most policies include guaranteed level premiums. Search around for the best quote based on your living situation.
• Disability Insurance — This coverage is vital in the event you suffer from injury or illness that takes you out of work. It’s estimated that one out of four 20-year-olds will experience a disability by the time they are 67 that will keep them out of work for 90 days or more. Short-term coverage will pay out a portion of your salary in the event you are out of work. Long-term coverage will pay out a portion if you are out of work for years.
• Umbrella Insurance — Most people have standard auto insurance. In the event of substantial damage or bodily injury, most policies are capped on how much they will cover. If you lease rental property and damage occurs, or if your home insurance doesn’t cover visitors to your primary residence, umbrella insurance will kick in.

3. Save, Save, Save

The essentiality of saving cannot be harped on enough. Before you spend money on conquering debt, home renovations or retirement, establish an emergency fund. Ideally, you should be putting 3 to 6 months’ worth of expenses into your fund.

The easiest way you can build an emergency fund quickly is to do some of the following:

• Cut back on subscriptions.
• Sell unused items.
• Meal plan and grocery shop wisely.
• Shop sales, clearance and secondhand for the unavoidable purchases.
• Eat out less and make your coffee at home.
• If you own a home, consider refinancing from an FHA to conventional loan, especially if you have at least 20 percent equity in your house.

Coming up with a financial plan requires you to put in time and effort, but it’s a realistic goal that can leave your family in a better position. Start by creating a budget that reflects your needs, and evaluate what kinds of insurance you should obtain. Also, start saving through an emergency fund to provide a cushion for when the unexpected happens. This kind of planning will pay off in financial security and give your family more confidence and peace of mind.

Photo Credit: Burst

Source: Sara Bailey / Thewidow.net