7 Ways to Get Started with Financial Planning as a Parent by Leslie Campos
There are many things that are scary about having a child, but the financial impact definitely ranks high on the list. Even parents who are currently financially stable worry about how they will guarantee financial security for their children, and it is even more stressful for those on limited incomes. The key is good financial planning – here’s what you need to do to get started.
Start Shopping for Life Insurance
You need to make sure your family is financially secure in case anything happens to you, so if you don’t have life insurance yet, now is the time. Start by using an online calculator – which takes into account your age, household number, and other factors – to estimate the cost of a term life insurance policy, and then use this as a reference to shop around.
Cover Your Estate Planning Basics
Estate planning can seem intimidating, but there are only a handful of documents that you absolutely must have. These include a will, durable power of attorney, and healthcare power of attorney. If you already have these, the most important thing to add is to determine your chosen legal guardian for your kids in case something happens to you and your spouse.
Work on Growing Your Emergency Fund
Experts recommend you have at least 3 months’ worth of expenses saved up. Once you have a family, this should go up to six months and, as you get better at savings, aim for a year. High wage earners should be aiming even higher, with $100,000 in a safe investment that they can easily access in case of emergencies.
Keep an Eye on Baby Costs
The first year of a child’s life tends to cost more than parents expect, so be prepared. BabyCenter’s cost calculator is very detailed and can be a great tool to get a realistic view of what your baby costs are going to look like.
These costs can seem pretty fixed, but there are actually plenty of ways to save on them. These start from the day you check in at the hospital (refuse add-ons, ask for coupons and samples of formula) and cover everything from shopping smart for clothes to making your own baby food.
Research Tax Breaks
There are a few tax breaks that can really help parents and that you should absolutely get familiar with. These include Child Tax Credit (up to $2,000 per child), Earned Income Tax Credit (for parents with three or more children), and Child and Dependent Care Credit (35% of care expenses or up to $3,000 for each child to help with care expenses).
Start Saving for College Early
Because of how interest works, saving for something as expensive as college should start as soon as possible. According to The Motley Fool, a parent that starts saving when their child is five will save almost double that of one that starts when they are 10, even if they are both putting aside the same amount of money every month.
Remember, your own comfort during retirement should still take precedence. There are other ways to finance college fees (scholarships, loans, etc.), but only so much your pension can cover.
Set a Good Example
If you have just had a baby, then it will be a few years before this comes into play, but it is important. Good financial planning for your family is just as much about teaching your kids to be good with money as it is about being good with money yourself.
Start talking to your kids early in life, have natural conversations with them about money, and give them a chance to experiment and learn about money management as they get older. By the time they head off to college, you’ll be sending a much more savvy person into the real world.
Financial planning is important for every new parent, regardless of income. A family on $60,000 with good planning will be more prepared than a family on $150,000 with no plan at all. Any family can learn to plan for their future, as long as they budget carefully, work on building savings and prepare for potential setbacks down the line.