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Five Steps for Creating a Financially Healthy Young Family

  • By Catey Hill
  • May, 2012
  • published in: Personal Finance

Pediatrician’s phone number is programmed into your iPhone, check. Home finally childproofed, check. Hand sanitizers strategically placed everywhere you may need them, check. You’re doing everything by the book for your child, and now it’s time to complete the final step in that equation: getting your finances in order to prepare for your family’s future and dreams. Here are five things every new parent should do:

1. Build up an emergency fund
An emergency fund is a stash of money set-aside to pay for unexpected life events, from new brakes for the car to a surprise medical bill to a new roof. Without it, you might have to pay for those expenses in financially harmful ways like by raiding your retirement fund or going into debt, says Danny Kofke, author of “A Simple Book of Financial Wisdom: Teach Yourself (and Your Kids) How to Live Wealthy with Little Money.” Save at least six months of income in your emergency fund, Kofke says, and put this money in a safe and accessible place, such as a money market or savings account.

2. Keep saving for retirement
As parents you want to give your kids the best of everything, but don’t let spending on extras for your kids come at the expense of saving for retirement -- or you may never get to retire, says Paul Golden, a spokesman for the National Endowment for Financial Education. Instead, max out your company match (if offered) and aim to save about 15% of your income for retirement, using both employer-sponsored retirement accounts like 401(k)s, as well as Roth or traditional IRAs, says Kimberley Palmer, the author of “Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.” An added bonus: By contributing to a company-sponsored retirement plan (as well as a flexible spending account for childcare and healthcare), you can reduce your taxable income.

3. Protect your family with insurance
You need life and disability insurance, says’s senior finance analyst Greg McBride, which protects your family from financial loss if something were to happen to you. If you pass away, life insurance provides your family with money to live on. If you’re injured and can’t work, disability insurance may help pay a portion of your salary. While some employers offer life and disability income insurance coverage at work, be sure to know exactly what you have as many plans are only good while you remain employed and may not offer you the level of coverage you really need.

4. Create an estate plan
Most of us don’t like to think about -- let alone plan for -- our passing, but your family’s financial health depends on it. Have a lawyer create a will and possibly a trust for you, says Richard Barrington, a senior personal finance analyst for A will details how everything you own gets divvied up when you die; a trust lets you control how your assets are distributed for years to come. Without a will, the state, instead of your children, might decide what happens to your assets. Without a trust, your children could wind up with assets they’re too immature to handle.

5. Start a college fund
Brace yourself new moms and dads: You can expect to spend anywhere from $300,000 to more than $600,000 for your child’s four-year college degree.* Yes, that’s a lot of money, but start saving now and junior can expect a cushy college fund. Begin by opening a college-savings plan, says Luke Landes, the founder of These plans differ from state to state, but typically offer choices that may allow you to make tax-free withdrawals on savings and earnings to pay for college. You should also ask a financial professional about other options to supplement educational funding, suggests Feldman.

Do you agree with these five steps?

Five Steps for Creating a Financially Healthy Young Family

About the author

Catey Hill is the author of “Shoo, Jimmy Choo! The Modern Girl’s Guide to Spending Less and Saving More” and a freelance personal finance writer whose work has appeared in The Wall Street Journal, SmartMoney, Seventeen and the New York Daily News, among dozens of other publications.

* In 2011, an in-state four-year college cost an average of $21,000 and an out-of-state four-year college cost an average of $42,000, according to the College Board. With college tuition rising at an average rate of 8% per year, according to data from, it may cost between $300,000 to $600,000+ for a four-year degree in 17 years (that’s when young parents will likely be paying for school), assuming that this decades-long inflation trend continues.

The content on this web page has not been previously published and is sponsored by MassMutual.

Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual), 1295 State Street, Springfield, MA 01111-0001 and its subsidiaries C.M. Life Insurance Company and MML Bay State Life Insurance Company, 100 Bright Meadow Boulevard, Enfield, CT 06082.

Executive commentary

"Like so many other mothers, I have a dream for my children. I work hard to take care of their scraped knees, to make the last minute trip to the store for a school art project, to pay for their expenses. I do this to help them mature into self-sufficient adults, of which the world needs more."
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Sarah Rieger

2012 Spokesperson, Disability Insurance Awareness Month

MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.


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