An emergency fund should be an essential component of every person’s financial plan. Unexpected tragedies can catch us by surprise, and an emergency fund can oftentimes be the difference between having a much-needed peace of mind and security or struggling to recover.
As the name suggests, an emergency fund is a separate account to be used only in the case of true emergencies such as medical bills or car and home repairs. While there isn’t a fixed amount to how much you should keep in your emergency fund but having between three to six months’ worth of your income is a good goal to have especially if you keep the most costly emergency, unemployment, in mind.
Reasonable Lifestyle
Even before making the conscious decision to start a family, you’ll likely want to examine your own lifestyle and spending habits. From there, you’ll be able to start creating a solid financial plan and start saving for a new stage in life.
Now, we’re not saying that you should save every penny you make. It is completely normal to have car repayments for example as long as the monthly repayments are within your means. However, purchasing a new car every couple of years may not be a wise decision. Knowing the importance of saving and good money management allows you to resist the temptation of living beyond your means until you can afford the lifestyle you want without incurring debts.
pay off debts
Improving your finances is essential as you think about starting a family especially if you’re expecting a newborn. You may want to consider how you can reduce your credit card debt, personal loan or home improvement loan. Apart from making regular debt repayments, consider reviewing your debt in terms of the fees and interest that you have to pay. Consolidating your debts into one can be a good option if it means you’ll pay less in the long run. As you progress in your career and receive raises and annual increments, check to see if you can pay your loans faster or refinance them to reduce the total loan payment amount.
save more
By living within your means and working towards paying off your debts, you’ll be able to reach the goal which is important for the financial future of any family - growing your savings. Aim to save at least 15-20% of your income every month. While this may seem like a far-fetched goal, it’s one worth working towards.
By saving this much, you’ll be prepared for factors such as inflation and unforeseen incidents. You’ll likely need a larger emergency fund once you start a family and saving more can help you achieve this in a shorter time. You can track your expenses and monthly cash flow to see where you can reduce expenditure.
invest early
Many young professionals make the mistake of thinking about their retirement later on in life. By starting early, you’ll be able to take advantage of compounding interest. Talk to a financial advisor to get information on what investment options are best for you according to your financial situation and your goals. Investing early provides you with more financially flexibility that you’ll need later in life, to provide for circumstances such as unemployment, unexpected medical bills or aging parents.
