Raising a young family is both wildly beautiful and really tough: the delightful chaos of early mornings, the scent of baby lotion mixed with fresh-brewed coffee, the hum of bedtime lullabies, and the incessant juggle of playdates, promotions, and mortgage decisions. Amidst the laughter and love, each day unfurls with countless demands — from nurturing ambitions to fostering a secure future for your little ones.
While it’s undoubtedly tough to manage all of this at once, young families have the benefit of time on their side when securing a sound financial future. You’ve got time to build your nest egg, nurture investments, and prepare for the future. But, you’ve got to create a strong foundation early on, especially when you have a family depending on you.
At URS Advisory, we have a passion for planning and helping young families realize financial goals. Here, we’ll discuss some of the financial foundations we recommend developing as a young family to be able to worry less and do more with that young family you love.
Estate Planning
Young parents may not think far enough into the future to believe early estate planning is necessary. However, estate planning early on ensures your children have a plan in place if something should happen to you as parents.
Your last will and testament should include your beneficiaries and the hierarchy of guardians for your children in the event you no longer care for them. Also, you should draft your incapacity documents which include:
- Power of Attorney
- Living Will
- Health Care Surrogate
Develop a Budget
Understanding your spending improves saving efforts and helps you have money in the future for things like:
- Medical/Dental Needs
- College/University Education
- Unexpected Emergencies
Budgeting software like Mint.com categorizes monthly expenses providing awareness to the flow of money in and out of your household. This helps you manage the realities of your financial situation by:
- Monitoring incoming and outcoming money
- Setting realistic financial milestones
- Managing short-and-long-term goals
With a budget in place and budgeting software to support you, you can plan finances for one month to thirty years in the future.
Invest in Life Insurance Coverage
In a small family, children depend on their parents for financial security. We recommend that each parent consider investing in a 20-to-30-year term life insurance policy and base your benefit amount on your gross income. We believe the policy should be 10 to 15 times the gross family income. If something happens, this cushion provides 10 to 15 years of your income to your family, where they don’t have to worry about how they will make it in the future.
In addition to income replacement, a life insurance policy can be designed to cover things like:
- College/University
- Debt (Mortgage, Personal Loans, etc.)
- Inflation in years to come.
Remember, life insurance is typically cheaper and easier to qualify for when you’re young and healthy. Taking out a long policy as a young family is often cheaper than applying for life insurance later in life.
Pro Tip: You can even use a life insurance policy to fund a special needs trust. Read more about it here.
Invest in Your Retirement
It’s a sobering reality: the steady paycheck that once fueled your family’s dreams and aspirations will eventually cease. Yet, the need for financial stability, perhaps even more crucial in the golden years, persists. As medical bills, unexpected expenses, and desires for more comfortable and possibly even luxurious experiences emerge, the absence of a regular income can become a pressing concern.
However, this future doesn’t have to be uncertain or unsettling. The power to secure a comfortable retirement lies in the actions you take today. By proactively investing in your retirement during your younger years, you’re not just saving money; you’re investing in peace of mind, freedom, and the continued ability to support and cherish the ones you love. Think of it as planting a sapling now that will grow into a robust tree, providing shade and respite during the warm afternoons of your later years.
Employer-sponsored retirement plans like 401K and 403B are a good place to start. Invest up to the annual limit and investigate other company benefits like disability and life insurance. This life insurance should be used along with a standalone plan. Don’t depend on employee-offered life insurance alone; typically, it isn’t portable if you switch jobs.
Consider Contributing to a Roth IRA
Contributing to a Roth IRA allows you to save above and beyond employer-sponsored plans. Even a non-working spouse can make contributions to a Roth IRA. A Roth IRA is a tax-advantaged retirement account for individuals. You can make qualified withdrawals from the account penalty-free and tax-free if you are 59 and a half years old and have had the account for over five years.
Roth IRAs may be preferable to other retirement plans because they tax the seed at a known tax rate (contributions) rather than at the harvest when the tax rate is unknown (at distribution).
Work With a Financial Advisor
With a strong financial foundation in place, you can then start allocating toward some more exciting goals.
- Vacation Homes: Perhaps a serene lakeside retreat or a cozy cabin nestled in the mountains, where family memories are crafted and the daily hustle fades into tranquility.
- Rental Real Estate: An avenue not just for potential additional income but to create legacies, perhaps even giving a young family their first home.
- Custodial Roth IRAs: An early start to ensure your children or grandchildren have a financial head start, teaching them the values of investment and foresight.
- Whole Life Insurance Policies: Beyond the assurance of financial security, it’s about leaving a legacy, ensuring that your loved ones remain protected and cherished.
- College Savings: A passport to your child’s dreams, helping ensure they enter the world equipped with knowledge without the burden of hefty student loans.
Dreams don’t reside in ledgers and balance sheets; they’re in the choices you make today for tomorrow. To navigate these choices and sculpt your financial masterpiece, connect with URS Advisory. Give us a ring at (561) 594-0100 or explore our world online. We can’t wait to help you make your dreams a reality.