7 Smart Financial Moves for New and Experienced Parents
Whether you are having your first child or you have been a parent for a few years now, planning for your future is a necessity. Not only do children cost an astonishing amount of money, but should something unexpected happen, you will want your family to be well taken care of. There are steps every parent should take to ensure your family’s short-term and long-term needs are met. Here are seven smart financial decisions both new and experienced parents should make.
Find a Balance
You will need a sufficient amount of money to see your child through to adulthood. By then you will need to be prepared to take care of yourself as well. Find a balance between saving for your child and putting money away for your retirement. Invest in your company’s 401(k) plan or start a retirement savings account at your bank. Remember your future is just as important as your child’s, so do not forget to invest in your retirement years. They will be here before you know it.
Have a Will and a Trust
The most important aspect of a will or trust is that it is clear to everyone what your wishes for your money are. In a will you can establish a suitable guardian for your children, someone you trust will care for your children the way you would. It will also distribute your money and personal belongings to specific parties you have named. With a trust you can go a step further by having the flexibility to distribute you assets to whom and when you choose. For instance, if your children are set to inherit a large sum of money, you may not want them getting it all at age 18. You can divide the funds up to be paid out over time to ensure the money will last.
Save for College
Your child is only a few months old. You may think that you have plenty of time to save for college. Unfortunately, the cost of college continues to rise each year. Begin saving as soon as possible. Speak with your bank or a financial adviser for tips on an education fund that will meet your needs. A 529 plan is a college savings plan that is deducted after taxes and will grow tax-free. Withdrawals are tax-free when used at an accredited, qualifying institution.
Update Beneficiary Documents
Financial documents will list a beneficiary if funds are to be distributed. Remember to update your paperwork to include the newest members of your family. If you have remarried, your ex may be named as the beneficiary, and it may not include your current spouse. Documents that may need to be updated can include disability insurance, life insurance, bank accounts or a will. You want to make sure that all of the money that should go to your family will, should something happen.
Have an Emergency Fund
While you are preparing for your future, a misfortune, such as a job loss or an emergency hospital stay, could strike at any time. If you own a home, major expenses that may not be covered by home owners insurance can run into the thousands of dollars. Have an available emergency fund that you can dip into, so that you are not forced to pull from long-term investments. The penalties you will end up paying for the withdrawal can be significant and set you back even further.
Buy Life Insurance
Many couples think they are too young to worry about life insurance. The reality is that tragedies happen at any age. You need to be prepared. Term life insurance policies tend to cost less than whole life. They only protect for a specified amount of years. Whole life insurance can be paid into and accumulate tax-free money. You will need enough insurance to cover all of your expenses and potentially have funds to live on. Since every family has different needs, speak with a life insurance agent to discuss your particular situation.
Purchase Disability Insurance
It is much more common than you think to become ill or injured and unable to work. Disability insurance ensures you will still get a paycheck until you are able to go back to work. This is especially important if you have not set up any short-term savings accounts. Many people live paycheck to paycheck and do not realize how fast the money will run out, should they become unable to work. Check with your employer, many offer disability insurance with their benefits package. Otherwise, talk to your insurance agent or financial adviser about an affordable policy.
Thinking about the future can be overwhelming. But, you will feel more confident if you take the proper steps to ensure the wellbeing of you and your family. Getting your finances in order will allow you the opportunity to rest easy. Should an emergency strike, you know that you are prepared to handle it.