The following post is provided by Pete Anderson, personal finance blogger for Bible Money Matters.
While we were going through the process of getting ready for my wife to have the baby we started thinking about some changes that we were going to have to make in order to ensure we had a good financial future. We had to set financial goals that would help us to provide a good future not only for ourselves, but also for our newborn son.
Setting Financial Goals
There are a lot of reasons we should set financial goals. Here are a few of them:
1. Goals help you to keep your eyes on a desired result, and help you focus your efforts: When you have a goal you have something that you’re aiming for, and it can help to focus your efforts. You can plan your actions with the idea of forwarding your end goals.
2. Having a goal helps you to measure progress: Without having goals, how will you know how you’re doing? If you have a goal of saving $1 million for retirement by a certain age, you’ll be able to figure out how much you’ll need to save every month. It’s also a good way to monitor your progress.
3. Goals can keep you on track when things aren’t going quite right: When you have goals you can use them to help keep you on track when you review them at your regular budget meetings. Not saving enough? Focus on the goal and get back on track!
When setting those goals, make sure that they are SMART goals: specific, measurable, attainable, realistic and time-bound. If they aren’t, you may have a harder time achieving them.
So what are the top 3 financial goals I think every parent should have for their family?
Planning Ahead For A Rainy Day
The first thing I think all parents should do is plan ahead for a rainy day. What do I mean by that? I think it’s important to plan ahead for major negative life events that always seem to pop up when we least expect. How can you do that?
- Saving Up For An Emergency Fund: One thing that is so important in my eyes is saving for an emergency fund to cover you in case of an unplanned expense. The emergency fund could cover hospital bills, automotive repairs or unplanned travel or funeral expenses. Saving up at least 3-6 months of expenses, if not more, can keep a negative life event from turning into an even bigger tragedy.
- Getting Insurance: Every family should have insurance to cover them in case of major events that might not otherwise be covered by an emergency fund. Make sure to look into all the main types of insurance including life insurance, health insurance, homeowner’s insurance, auto insurance, disability insurance and in some cases umbrella insurance.
Saving For Retirement
The second thing that I think is important for parents to do is to plan ahead for their own future, and save for retirement. Some people might say it’s more important to save for your child’s college education, but I think saving for your own retirement – so your kids don’t have to take care of you down the road – is even more important. Because of that I recommend parents setting retirement goals first, and making sure that their own retirement and saving goals are taken care of before college savings.
How can you do that? By setting up goals for retirement amounts you’ll need, and then implementing a plan to reach those goals through saving and investing. How you do that could be as simple as setting up a new Roth IRA through a company like Betterment.com and automatically depositing money money every month (like we have done), or by investing in your company’s 401(k). Figure out a goal, and then set a savings and investing plan in motion.
Saving For College Expenses
While I think saving for retirement is important, I also think it’s important to start saving for your children’s education. We want our son to take an active role in paying for his own education, but we do want to help him out as well. We don’t want him to be crippled by school loan debt, as so many are these days.
Because of that we’ve put in place a plan to help save for our kid’s education. There are a lot of options for saving for an education including saving in an ESA, a 529 plan or even a Roth IRA. Make sure to research which options are best for your situation, and start saving for their education as soon as possible.
When you start a family it brings incalculable love and joy into your life, but with it you’ll also have added responsibility. Responsibility to yourselves, and your children. Make sure to put together a family financial plan, set goals, and work towards building a solid foundation that will pay off years down the road.
It’s common to wonder how much you are worth. Your first instinct is probably to tote up all of your assets and subtract your liabilities. That is your net worth, and one way to get a snapshot of your monetary worth.
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