Start Budgeting for Your Kid
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Start Budgeting for Your Kid to Build Growth and Learning…
As a new parent, it’s important to start budgeting for your kid. This will ensure a stable future for your child. To ensure you provide the best for your child, budgeting goes beyond simply saving for your child.
To start budgeting for your child, you’ll have to think about what they’ll need when they eventually fly the nest. Start thinking about the everyday documentation and administrative bits you have in place that you can refer to at any time. It’s best to do this before you have your baby. A social security number, for example, is vital to be able to do basic activities like open a bank account. Documentation like this will make your child’s life in the future much easier. There are loads of other things you can put in place to ensure a bright future for your child.
Health Insurance
Get a good health insurance policy together to ensure you and your child get the necessary help should either of you need it. Medical procedures and even some medication are expensive to fork out. Good health insurance will ensure you’re covered for any medical emergencies. A good policy will also help to contribute to the costs associated with having a baby in the hospital. The Affordable Care Act is a great guide to use as it covers what sort of health insurance is available in your state.
You may be in a job that pays for private health care, in which case it would be good to familiarize yourself with the policies you have in place.
Emergency Funds
Make sure you have some funds saved up for emergencies to start budgeting for your kid. This should be in a separate account and separate from your health insurance plan. Emergency funds don’t necessarily have to cover medical emergencies only. The emergency fund should act as a financial cushion should anything happen to you as parents such as job loss. With your child relying on you, you have to make sure there is sufficient cash flow at all times.
An emergency fund could also help with unexpected expenses such as a car breakdown and household maintenance. These factors will equally benefit your child and will set a good example for them in the future.
Budget for Education
Education will be one of the most important aspects of your child’s life in their early years. It is vital to you, as parents have a stable financial plan to ensure your child gets the best education possible.
Remember, education goes well beyond the standard school fees. You also need to budget for extracurricular activities that will help your child realize their full potential. Think about things like music lessons, dance lessons, hobbies, sports, and anything else that your child may take an interest in.
Keeping your child stimulated and interested in a number of different activities is vital for their development.
It’s also a good idea to start budgeting for further education from an early age. You’re naturally going to want your child to succeed at school so that they can get into college to become qualified for a career they want to excel in. College funds will give you the ability to give your child a push in the right direction, and give them the opportunity to get ahead in the world.
Set Up A Pension Early
Part of budgeting for your child is making sure that you are financially independent so that your kids can enjoy their financial independence one day too. You should be thinking about your pension before you have your child and try your best to keep your pension separate from your other funds. Your employer should contribute to your pension in some way. Most employers offer to match the same amount you put away. The best way to go about this is to put money into a 401(k), which will ensure you and your employer contribute to your retirement plan effectively. It’s also possible to have a separate pension plan, which will additionally help you once you decide to retire. The more financial stability you have once you are older, the more independent you will be from your children. If your employer does contribute to your pension or retirement plan, make sure you understand the full extent of the plan and the contributions your employer makes, and those that come off your salary.
Budget For Essentials
Start budgeting for your kid to ensure you have enough for the essentials. It’s important to do as much planning for your baby as possible. This includes financial planning. Saving up for nappies, baby food, formula (should you choose not to breastfeed), baby clothes, and toys are essential. You don’t want to be caught off guard with sudden expenditures after your baby has been delivered. Child care should also form part of your essential budget so that you can afford to send your child to nursery or pay for a nanny should you need to continue working.
Get Your Child’s Documents Sorted
As mentioned, documentation such as a social security number is vital for anyone to be able to prove their identity in the US. You should also make sure your child has a birth certificate as soon after they are born as possible. Documentation may incur extra costs so it is vital that these form part of your baby budget. Do your research and you’ll be golden!
Terms of Employment
Another thing to get sorted before your baby arrives is the terms of your employment. Make sure your employment package gives you paid maternity/paternity leave so that you do not fall financially short during the time you are looking after your little one. If you plan on having more than one child, the leave you get may not be the same as the first, so just make sure you keep communication with your employer as open as possible.
How to Include Your Kids When Budgeting for Their Futures
One of the best ways to start budgeting for your kids is by teaching them at an early age how to be proactive when budgeting for themselves. While it is common practice, and important, for parents to start budgeting for things from the moment they realize they are expecting, it can only go so far if your kids know how to follow through. There are multiple ways to make your children more aware of the importance of budgeting their money and financially preparing for the future. Here are a few great ways parents can teach their kids about budgeting.
Fixed and Variable Expenses
One of the most important things you can teach your child is the difference between fixed and variable expenses, expenses that must be paid on a routine and regular basis, weekly, monthly, yearly, etc. (fixed), and those that come about sporadically and can change in total every time (Variable).
Gross Income and Net Income
The biggest shock your child will ever experience in the working world is when they open their first paycheck and there is a whole lot less in the amount section than they expected. To prepare them for this, teach them the difference between gross and net income ahead of time. How much money you made vs. how much you receive after a variety of deductions are taken.
Teach Your Kids the Importance of Saving and Investing
Teach your kids the difference between saving and investing money and how they can both be beneficial, while still having a downside. (i.e., Saving “low risk, low reward. Investing, high-risk, High Reward.”.)
There are tons of great tools and books available to help explain these things to your children, an amazing book you might want to consider is Investing for Kids: How to Save, Invest and Grow Money.
Three Types of Budgeting Systems
Depending on how your child learns best, there are a few different options available for controlled and successful budgeting. Decide which one feels right to them, then go with it. It is better to discover early on that one way just doesn’t work, and they can choose a different route before it becomes a mess of confusion in the future.
Zero-based budgeting
The easiest way to explain this style of budgeting to your children is by creating a chart that shows the total amount of money coming into the home and then writing out a list of where every single penny of that income will go, with your monthly balance remaining at zero at the end of each budgeting session.
The 50/30/20 budget method
The 50% towards needs, 30% towards wants, and 20% towards the future method is probably not the best option to use when introducing kids to budgeting. However, it is a good thing to quickly explain to them, because it can be extremely useful in the future.
The envelope budgeting method
The envelope method is one of the best types for visual learners who do better with a more hands-on approach. This is a great start off point for kids when learning to budget because they can physically see where their money is going and why. Allotting each envelope to a different area is not only a fantastic way to encourage and teach budgeting to kids but a great way for them to learn to become more organized with their finances and their space.
Tools To Aid in Teaching Your Kids Budgeting for the Futures
There is a lot of help out there for parents who want to start budgeting for their children and for those who want to start teaching their kids how to budget for themselves.
Here is a list of useful tools and techniques every parent should look into before they sit their kids down and start any lessons.
Budget Calculator: Free ; Easy | Quicken
There are tons of free budget calculators available online that are easily accessible to everyone. These calculators will give you the opportunity to play around with numbers and possible income to get a good sense of where their finances can go and what they may end up having to cut back on.
Budgeting Apps
You can take things a step further and download a budgeting app to your child’s phone or computer. This is ideal for teens who may have just started their first job. Apps like YNAB, Mint. and Wally, are all great ways for your kid to get a close look at how budgeting really works.
These apps will allow your teen to put money into the account, and will help them decide where the money should be spent. Providing them with an organized and visual learning tool.
Credit/Debit Cards
Child-friendly credit/debit cards are one of the best ways to teach your kids about budgeting and will help them learn quickly how fast money can be spent without even realizing it if you don’t have a set budget.
You can use this option with kids as young as 7 or 8, providing them with a specific weekly or monthly allowance, then letting them decide how to spend their money, not coming to their rescue when halfway through the month their card balance is at zero and they realize they want a new video game or soccer ball.
Final Thoughts
Whether you are thinking about your child’s financial future before they can be a part of it, or, you are ready to teach your kids the importance of budgeting, make sure you are prepared with plenty of tools, information, and patience. In a world where money is tight, budgeting for your child early is one of the best decisions a parent can make.
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Learn how to start budgeting for your kid with these simple steps. You’ll be financially ready for your baby in no time!
References
https://www.investopedia.com/ask/answers/100314/whats-difference-between-401k-and-pension-plan.asp#:~:text=A%20401(k)%20is%20a%20retirement%20plan%20to%20which%20employees,risk%20of%20the%20financial%20obligation.
https://www.schwabmoneywise.com/my-life/budgeting-for-child
https://www.westernsouthern.com/learn/financial-education/how-much-does-it-cost-to-raise-a-kid
https://www.nerdwallet.com/article/finance/baby-budget-new-parents
How To Teach Your Teen About Budgeting (thebalance.com) -added resource
