Becoming a parent is a significant life event that affects every facet of your existence. New parents have a lot on their plates, and making tough financial choices may add stress. The financial impact of expanding your household from a couple to parents and children may be long-lasting. Getting your financial house in order ahead of time can reduce stress and make the process go more smoothly. Similarly, it will pave the way for a promising future for Junior.
Whether this is your first kid or you already have a large family, it’s essential to consider the financial implications of your family’s growing size. Taking these seriously might have a profound impact on your children’s lives.
Make a Will
I was astounded to learn that the state decides who will care for children whose parents die intestate (without a will). Yes, regardless of whether or not the family has previously decided (informally) on a guardian. The government has the power to ignore the desires of the dead parents. Get your hopes and dreams down on paper. If you have little children, you must have a will. Having a plan in place for how your assets will be distributed after your death is one thing. Still, you must also have a firm understanding of who will care for your children in the event of your untimely passing.
This is an actual experience I had. Both my mom and dad are now stationed abroad. They can’t take my kids without a will or trust. Having a will also allows you to choose an executor to manage your estate after death. While your kid is still a minor, that individual will manage his or her financial resources. It’s better to have these answers planned out in advance. Communicate your concerns to those closest to you. The next step is to decide who will serve as your child’s legal guardian in your absence.
If you don’t, the state may place your kid in foster care until the court decides what to do. Your children will probably end up in the care of a relative, but getting them there may be unpleasant and costly. As attorneys figure out the issues, legal bills might eat away at your inheritance. Don’t give up hope just yet!
It’s a good idea to invest in life insurance
Most working adults have access to group life insurance via their place of employment. However, the strategy is typically relatively simple. If anything were to happen to you suddenly, this probably isn’t adequate protection for your loved ones. Not many people ponder the “what if” scenario. Still, the reality is that most modern households need the earnings from both parents to make ends meet. What would happen to your household if one of the incomes disappeared tomorrow? You should aim to get insurance that is at least five times your annual earnings as a minimum.
But it doesn’t mean at-home parents don’t need to protect their families with a life policy. Based on research conducted in 2018, Salary.com determined that a stay-at-home parent should be paid around $162,500 annually. Without life insurance, the death of a stay-at-home parent would still leave a financial burden on the family. The family would have to pay someone else to care for most of those tasks. In conclusion? Have both parents been insured adequately by life insurance? While it’s a good idea to have enough money to support your kids for at least five years in the event of your death, you should aim to have enough money set aside to support them long into adulthood.
Create or boost your savings for unexpected events
Three to six months’ worth of living expenditures should be saved in case of emergency, as is common knowledge. When you have two working parents but no children, it’s easy to forget about retirement savings. After all, not having children reduces the number of unforeseen costs. In addition, the likelihood of a severe event that would cause financial hardship is relatively low.
But it completely changes when the couple starts a family. Having a baby is expensive, with the expense of formula, diapers, and other necessities. Getting ill may be more often now that you aren’t getting enough rest. That calls for more trips to the doctor. Even if your and your family’s health is excellent, your new baby will still need several medical visits.
You should put some aside for a rainy day. Whatever the case, whether it is an unexpected layoff at work, an unexpected illness, or a worldwide epidemic like the one we’re all experiencing right now, it’s essential to be prepared. Suppose you set up an automated transfer of your paycheck to a savings account. In that case, you will probably forget about the money.
Pay Attention to Yourselves
This recommendation appears on almost every list of ways to save money. The point, however, is so vital that it needs constant restating. Pay yourself first by setting up money for retirement before you worry about setting aside money for Junior college. You can’t get a loan for retirement. However, your kid can go to college with loans, grants, and scholarships. It’s wonderful if you’re in a position to establish a college fund for your kids and save for retirement. You should prioritize your needs above those of others if a choice were made. Your kids would probably prefer to pay off debt than take care of you in your old age.
When you want what’s best for your kid, it’s tempting to go overboard. It’s lovely to want to shower your newborn with gifts but try not to go overboard. Whether your baby sleeps on luxury crib linens from an expensive boutique or hand-me-downs from Auntie’s closet, it makes no difference to them. Hand-me-downs are often more comfortable than brand-new garments because of the wear and tear.
Toys are another option. Don’t go crazy on the kid’s playthings. Young children have the same joy playing with Amazon delivery boxes as with toys that cost hundreds of dollars. No matter how much money you spend, they will tire of them quickly.
Kids don’t start thinking the pricier stuff is better until they’re a little older. However, avoiding purchasing too much for your children in the early years is best.
Create a Savings Plan for Higher Education
The cost of a university education continues to rise. The average cost of attending a public, four-year university inside one’s own state for the current academic year is $10,560. According to data compiled by College Board, the average yearly cost of a four-year private college education is $37,650.
The average American college graduate now has debts of about $40,000. Total American household student loan debt has reached $1.7 trillion. One cannot avoid the reality that college costs a lot of money. Therefore, parents should begin saving for their kid’s college education as soon as possible after the birth of their child. Consider starting a 529 Plan, a tax-advantaged savings plan for future educational expenses.
The importance of having health insurance
Don’t forget to include your kid in your health insurance plan if you already have one. Consider purchasing individual health insurance if you and your spouse do not qualify for group coverage via your employment. You should put aside money to pay for unexpected medical expenses, such as dental work or the cost of prescription medications.
Regular medical visits are typical in a child’s first few years, even if the child is otherwise healthy. However, the price of medical appointments and medication to treat minor illnesses and infections may quickly pile up. It is recommended to purchase a family health insurance plan that can cover everyone for a reasonable price. Most major health insurance providers have online resources detailing their coverage options. This includes Blue Cross, United Healthcare, and Aetna.
Repay Your Financial Obligations
Besides following the advice in this article, new parents should also take measures to get their debt under control and start paying it off. Debt may have a devastating effect on a family over time. It’s more challenging to be approved for auto loans and mortgages. The minimum payment required each month to keep up with debt may significantly drain a household’s resources.
One credit card should be kept just for use in case of emergency, and this should be the card a parent uses. Always maintain your credit card debt at zero by paying off the amount due each month. You may avoid paying interest on your credit card debt by keeping in mind that most credit card companies charge between 21% and 28% annually. Don’t put off paying back your college debts. Then, avoid taking on any debt that you can avoid. It’s essential to remember that the only time it’s OK to take on debt is when you’re investing in something that will increase in value over time (like a home). Other debts, excluding bad ones, include the majority of the rest.
Preschool Spending Plan
Childcare is a significant financial burden for working families. If both parents are in full-time employment, you’ll likely need to find some kind of childcare arrangement for your child. These aren’t inexpensive services. The monthly cost is around $1,230 per kid, as reported by the Center for American Progress. Almost $15,000 per year is the average cost of daycare in the United States for a newborn.
If you and your partner have many small children who need care, you must carefully budget for childcare costs. Having helpful relatives close by might lighten the load. However, not everyone has access to such a convenience.
Find Out About Tax Breaks and Deductions
OK, here’s some positive news. Being a parent may improve one’s financial situation. The United States offers a child tax credit to families with small children. This credit, implemented initially to assist taxpayers in providing for their families, has seen significant expansions in light of the worldwide epidemic. The tax credit for children reduces tax obligations by the same amount for each qualifying kid.
Each qualifying kid under 18 is eligible for a maximum yearly tax credit of $3,000, or $3,600 for children under six. The child tax credit will become entirely refundable in 2021. In addition, beginning in July 2021, qualifying taxpayers will begin receiving advance installments of the 2021 child tax credit. It’s also worth noting that parents may take advantage of several other tax breaks. As a parent, you may be eligible for certain tax breaks and deductions that might result in a financial windfall at tax time.
Make Some Extra Cash on the Side
It’s not simple to keep track of everything on this list and the costs of having kids. Since there’s only so much, you can do with one piece of money. You may wish to earn some additional cash on the side to assist with the expenditures of raising a family. One way to supplement one’s income is to engage in colloquially known as “side hustles,” or activities pursued after regular business hours or on weekends.
Extra labor is easy to get by than ever before. Individuals may supplement their income by working for firms like Uber or GrubHub or freelancing or selling their own goods on online marketplaces like eBay. You might find a variety of opportunities to supplement your income. Probably the only thing holding you back is your own creativity. It would be considerable assistance to have the additional money for the baby’s arrival.
Inculcate Responsible Spending Practices
Each generation is responsible for educating its young and passing on its accumulated knowledge. And solid fiscal habits are something that every parent should instill in their kid. Don’t keep your knowledge of financial matters to yourself; teach it to your kid (at the appropriate age, of course). Get them started early with a bank account and teach them to manage their money wisely. Keep in mind that learning about personal finance is an ongoing process.
As we go through different phases of life, our monetary requirements and needs evolve accordingly. Having your kid along for the ride can help them avoid many financial problems that hold individuals back and reduce their quality of life as adults. It will also help them flourish in the future. Be sure to keep paying it forward.
Bringing a kid up to age 18 is projected to cost roughly a quarter of a million dollars. And it doesn’t even account for the price of further education. Spending too much on children may add to the burden of supporting a family. This is good news for your family’s financial situation. Plus, it’s a great way to show your kids the importance of being economical. They will benefit from the lessons learned throughout their life. Many children who grow up with fewer resources have an enhanced capacity for imagination and innovation since they must find their own sources of entertainment. Isn’t that what you desire for your children?
To conclude, don’t be bashful about broaching the subject of finances with your kids. Newborns are obviously an exception to this rule. The best time to start talking to your kids about money is when they’re three or four years old. Tell them where your money comes from and what you do with it (rent, food, etc.). You shouldn’t feel bad about telling them that a new iPad or gaming system is out of the question. In a short time, they will realize that monetary resources are infinite.
Featured Image: Pexels © Yan Krukov