Your spouse and children may be your greatest joys in life, but do you get a little stressed out when it comes to preparing your family's finances for anything and everything that might be thrown your way?

You never know when an unexpected injury might necessitate a visit to the doctor, or if your spouse might experience a sudden layoff. In a worst-case scenario, what if you or your spouse were to unexpectedly pass away? Maybe you have considered all these situations, but have you done anything to prepare for them?

Let’s face it: Having a family is a huge financial responsibility. In fact, raising a child until age 18 costs about $233,610, according to a study conducted by the U.S. Department of Agriculture — an average of $36.50 every day.

Everyone needs to take time to manage their finances closely, and if you have a family there are a few items you really can’t afford to overlook. Here are some of the steps that you can take to help keep your family financially sound no matter what life may bring.

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1. Have an Emergency Fund

Financial advisors generally recommend that you have enough cash in an emergency fund to cover between three to six months’ worth of living expenses. For some families that are already on a tight budget, this may seem impossible. However, some money in an emergency fund is better than a nonexistent emergency fund.

If you don’t have an emergency fund, start one today. Be sure to have your emergency fund in an account that you can access easily and immediately if necessary. 

For example, a savings account is a good option because there is no penalty for removing your money. Though savings accounts allow easy access to your money, they pay very little interest. You may consider putting some money in a savings account for immediate use, and add the balance to a money market account or a certificate of deposit. 

Be sure to ask about any early withdrawal penalties or minimum balance requirements. It’s important to note though that with certain savings accounts you can be fined if you make more than six withdrawals within a statement cycle. 

A money market account is a great option as well, but it typically requires a higher minimum balance to avoid fees — so if you’re starting out with a small balance you may want to avoid this.

As a family, determine how much money you can reasonably set aside each week. Then have it automatically deposited into your emergency fund account –– just like your retirement savings. 

Many employers allow paychecks to be portioned into different accounts. If your employer does not offer this, you can likely set up these allocations through your bank online. You’ll rest easier knowing you have some money set aside for those just-in-case situations.

2. Ensure You Have Your Debt Under Control 

What does it mean to get your debt under control? After all, having debt doesn’t necessarily have to be a bad thing (although it can be). 

Either way, understanding different types of debt and effectively managing them is a critical part of thoughtful family planning. 

A good kind of debt, for example, is a mortgage. Taking a loan from the bank in order to purchase a house is a fiscally responsible decision. Despite having debt in the form of a mortgage, you are providing shelter for your family. Meanwhile, your property increases in value so that when you eventually sell your home you will have made money. 

Of course, there are other types of debt as well. Depending on the type of debt and varying interest rates, there are different methods of managing it. It’s important to research your debt and evaluate the most effective and efficient way to pay it off in a timely fashion. 

Another essential part of controlling debt is sticking to a reasonable budget.

“Make sure your financial situation is in good standing before you are able to provide for dependents,” recommends certified financial planner (CFP) Zachary Bachner

In other words: Get your finances on track before making preparations to grow your family. 

3. Get Life Insurance

If there’s anyone in your life that’s even slightly financially dependent on you, you need life insurance. If something were to happen to you, your family or partner would suffer not only emotionally, but financially as well — compounding the stress of what would be an already traumatic event. 

Thankfully, obtaining a policy is affordable and easy.

Term life insurance provides an additional layer of protection for your family's finances and is cheaper than you might think — in fact, half of Americans overestimate the cost of term life insurance by more than three times, according to the Insurance Information Institute’s 2020 Insurance Barometer Study

If you’re relatively young (30s) and healthy, a term life insurance policy can be worth your while at a low monthly cost. Obviously premiums vary from person to person (with risk, age, gender, and other factors determining how much you’ll pay per month).

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4. Consider Disability Insurance

Beyond planning for your unlikely demise, you should also take strides to financially prepare for an unexpected, life-altering injury. Ask yourself: If you were seriously injured and could not go to work, would your family suffer without your steady income while you recovered?

Without your paycheck, could your spouse keep up with the mortgage, groceries, kids’ school expenses, car payments, and credit card bills alone? 

The answer for 52 percent of Americans living paycheck to paycheck, according to a 2021 survey conducted by the National Endowment for Financial Education, is no. This is when disability insurance (DI) would be life-saving.

If you are unable to go to work because of a serious injury or illness, DI ensures that you would still receive at least some income until you’re able to return to work. 

Some employers provide short- or long-term DI, or you can opt to purchase your own policy. There are also federally funded disability insurance programs such as Social Security Disability Insurance and Supplemental Security Insurance. Both of these federal programs pay benefits to people that qualify. 

Though it may seem unpleasant to prepare for a disastrous injury or illness, it is prudent and necessary financial planning for the well-being of your family (as well as yourself). 

5. Have a Living Will

A living will stipulates your preferred medical care for circumstances in which someone else must make medical decisions on your behalf. 

This can include statements about your decision to refuse resuscitation for an injury or illness that has reached a certain point, your preferences about medication for pain mitigation, or your decisions about organ donation. 

In other words, having a living will provides your family with medical guidance and the peace of mind that they are honoring your decisions. 

This type of planning is valuable because it protects your family from making potentially irresponsible decisions, particularly during emotionally taxing times. 

Making arrangements for a living will, although a bit morbid, is responsible and eliminates some of the daunting uncertainty from the future. 

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6. Review Beneficiaries

Do you already have life insurance? Maybe you planned ahead before you even had a family and took advantage of the inexpensive rates of your youth. 

If that’s the case, you’ll probably need to review your death benefit amount and beneficiaries. After important life events (marriages, births, home purchases, job changes, etc.), it’s important to review your life insurance policy to make sure it still fits your lifestyle.

Keeping your beneficiaries up to date is extremely important. For example, if you go through a divorce and then remarry, presumably you would want your current spouse and not your ex to be the beneficiary of your life insurance policy. 

“In the case of a divorce, one of the first things to do is update beneficiaries on all policies,” says CFP Chad Manberg

“If the family has young children, it might make sense to set up a trust while going through the divorce, and leave the trust as the beneficiary,” Manberg adds. “This way the money still goes to the minors, however you can control when and how they receive the money.” 

Taking steps in response to major life changes like divorce and/or remarriage ensures that your money gets to its intended recipient. Moreover, making sure to update beneficiaries can protect your family finances from any potentially messy will arbitration, long after you’re gone. 

7. Open a Retirement Account

Putting some of your hard-earned money into an account you can’t touch for years may not be the most alluring idea. However, preparing yourself to be financially comfortable later in life will make saving worth it. 

The fact is that you don’t want to have to work just as hard as you do now all through your golden years — moreover, you wouldn’t want to put an additional earnings burden on your children, either. 

The younger you are when you open a retirement account and start contributing regularly, the more money you will accumulate over time. 

This is because compound interest, a diversified portfolio, and time all allow your money to grow exponentially. 

“The biggest pitfall we see is that individuals or families do not save early enough for retirement,” says Bachner. “Time is your greatest resource and compounding interest is your best ally when saving for financial goals — the sooner you start, the less you have to save per month while still hitting your goals.”

If your employer offers a 401(k), take advantage of this especially if the company offers to match your contributions (typically up to a certain percentage of your pre-tax income amount). You can contribute up to $19,500 per year, per limitations set by the Internal Revenue Service — and those older than 50 can contribute an additional $6,500. 

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Even if you work as a freelancer and have your own business you can participate in retirement savings plans. Simplified Employee Pension Plans (SEP-IRAs) offer the benefits of employee individual retirement accounts (IRA) to businesses of any size.

This means that even if you are self-employed you can start saving for retirement, regardless of whether or not you have an employer-sponsored plan. 

The easiest way to fund your later years is to have a portion of your paycheck automatically deposited each month into your retirement account. This way you never even see the amount of income you are “missing out on” until you retire and it’s time to cash in. 

Opening and contributing to a retirement account ensures your future financial stability without creating additional pressure and expenses for your family. 

8. Start a 529 Plan 

Planning ahead to face the future costs of education is essential for the stability for your family's finances — thankfully, 529 plans can help.

These plans enable account owners to save for college and private high schools, essentially functioning like Roth IRAs. Contributions to a 529 plan are made after taxes, with the plans themselves usually consisting of appreciating assets (like mutual funds and stocks). 

Unlike traditional retirement investment vehicles, however, the account owner of a 529 plan is not taxed on their investment earnings, nor do they pay tax when using funds from the account to pay for qualified education expenses (such as tuition and room and board). 

All states offer 529 plans in one of its two forms (prepaid tuition and education savings plans), and most Americans are eligible to create an account for a dependent (or even for themselves) — the only qualification is that the account owner be a U.S. citizen or resident alien. 

9. Budget for a Baby 

Given that the cost of care for infants is staggeringly high — and seems to go up every year — it’s important that future parents make a plan for allocating their family's finances for child care. 

Median income households spend approximately 18 percent of their total income trying to cover the cost of infant care, according to the Center for American Progress (CAP). To be classified as “affordable” by the federal definition of the word, child care should cost no more than 7 percent of total income, according to CAP. 

Prior to having a baby, expectant parents should start reducing their spending to account for the costs of feeding and clothing an infant, because even minor expenses add up. 

Especially considering the cost of care and education, budgeting even in small amounts can be helpful. 

The Bottom Line 

Planning for the future of your family's finances is a little scary, but necessary. 

That said, taking small, incremental steps to address all facets related to having a family can help build a strong foundation for the future.

Preparing for college, ensuring you’re ready for an emergency, and saving for retirement are just a few of the boxes you’ll need to check. Plus it helps to double back and ensure these preparations stay current with your earnings.

Once you accomplish these tasks, know that if the unforeseen were to happen, your family can remain financially steady — and prepared for whatever life throws at you. 

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