Expecting a new bundle of joy? Get ready for a wild ride, whether this is your first baby or you’re bringing a little brother or sister into the mix.
Just don’t let your joy cause you to forgo making some important financial decisions. While budgeting and juggling childcare with work responsibilities is key, there are many other aspects that must be handled.
What should you do right now, and what steps matter in the future? We’re here to answer those questions with some financial planning tips.
Ten Financial Planning Tips To Protect Your Family
Our financial tips for parents cover many different areas, from insurance and tax preparation to budgeting and savings. Some you may already know about, but other tips might surprise you.
Let’s jump into it now.
- Update Your Health Insurance
Normally, you have to wait until the annual renewal period to make any changes to your healthcare plan. Having a baby counts as a “qualifying life event”, however, which means you can add your child. You normally have 30-60 days after the birth to add your baby, but check your plan to find out the specific rules.
Once you’ve added your baby, he or she should be covered retroactively. This means any medical expenses incurred from the moment of birth will be covered.
- Buy Life Insurance
No one wants to imagine something tragic happening to you. Unfortunately, an accident or illness could strike at any time. One of the most important financial tips for parents should be to buy a term life insurance policy. Firstly you need to understand the various Insurance options by age group to ensure you choose a policy that aligns with your family’s specific needs and stage of life.
However, if any misfortune like a storm or tremor occurred and the insurance Claim Denied by the insurance agency for your home damage, you can take strict action against them.
A term life insurance policy is designed to pay a set amount every month to your designated beneficiaries in the event of your death. This ensures your family will not be left financially destitute if you die.
- Update Your Tax Forms
Children can be claimed on your taxes so make sure to add your new baby when you file. Right now there are a couple of tax breaks designed for families. The Child Tax Credit (CTC) under the Tax Cuts and Jobs Act (TCJA) has doubled from $1,000 to $2,000 per child.
A tax credit means you get a dollar-for-dollar reduction on your tax liability rather than a deduction that lowers your taxable income.
- Create Your Will
If you don’t already have a will, now is the time to create one. A will lays out your wishes for how you want your estate and family matters handled in the event of your death. The purpose is to explain how you want to divide your assets, name beneficiaries, and who should be the legal guardian of your children.
Most people name their spouse/partner and children as beneficiaries. You may also want to leave something for other family members or organizations/entities that you support.
In the case of children under eighteen, you can put money in a trust until they reach a certain age. You will need to designate a trustee to manage and protect the assets.
- Buy A Long-Term Disability Policy
Long-term disability is designed to offer financial protection in the event that you suffer a debilitating illness or injury and cannot work. The loss of income could put your family in real jeopardy, even if your spouse/partner is also employed.
Disability insurance will ensure you still get a percentage of your income for a designated period of time. You can buy short-term or long-term insurance or both. Often, you can get these plans through your employer, but if not, it’s possible to buy a plan on your own.
- Make a Budget
Baby budgeting is so important, especially these days. Raising a child is expensive. The USDA estimates that American families spend $10,000-$34,000 per year raising a child. If you have more than one child, the expenses will go up even more.
Some expenses may be a one-time investment, such as a stroller, nursery furniture, or car seat. Other expenses will be ongoing, such as food, clothes, diapers, medical, and childcare. You can find online programs and apps to help you create a family budget.
- Save For Emergencies
One thing the COVID-19 crisis has taught us is that things can change overnight. Millions of people were furloughed or laid off when businesses had to close.
You could have other unexpected expenses, such as a medical emergency or having to put a new roof on your house. Most experts recommend that you build an emergency fund that will cover your expenses for 6-12 months.
This is not easy to do, but it is important, especially if you rely on a single income.
- Take Advantage of HSA Contributions
HSAs or health savings accounts are a pre-tax benefit that you can use to pay some medical expenses. If you don’t use the money in a given year, the balance can be rolled over to the next year, so you will never lose it.
Many employers offer HSA benefits, with the amount you designate automatically deducted from your paycheck each time. There is an annual limit of what you can add to your account, but surprisingly, many people don’t reach their limit.
- Plan for Your Retirement
If you haven’t already done so, start saving for your retirement now. Many employers offer 401(k) plans, with the employer agreeing to match the funds you put in. You should absolutely take advantage of this benefit.
You can also open an IRA or Roth IRA if you don’t have a 401(k). You won’t pay taxes on any investments put into a 401(k) or IRA until you withdraw the money.
When creating your retirement plan, learn the differences between a commercial bank and an investment bank.
- Start Saving For College
If you thought raising a child was expensive, wait until you look at the price of college. According to College Data, the average price of tuition and fees for 2019-2020 added up to over $10,000 per year for a public college. The average private college is over $36,000.
In light of these facts, starting a college savings plan ASAP is absolutely essential. Most states have pre-paid or education savings plans. Some plans let you lock in today’s tuition prices for in-state schools. Others work more like a regular savings plan.
Get Your Financial House In Order
Planning for a baby takes a lot of work. You might have your birth plan and the nursery ready, but what are your plans once the baby is here? Now is the time to start making important financial decisions that will protect your family no matter what happens in the future.
These financial planning tips can serve as your guide.
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