My wife and I just added our first child to the family so this is a topic that has been weighing on my mind over the last 40 weeks. I will share just one non-financial takeaway from the entire experience. The global population may be much lower if men had to go through what women do. That being said, this article is meant to be a guideline for some of the important financial items to consider with children. Worrying about your children will never end and being comfortable with the financial aspects of parenthood may allow you to worry a little less and be able to enjoy the time you have with them.
There is a lot of information to take into consideration when putting together a financial plan and the larger your family the more pieces to the puzzle. It is important to set goals and celebrate them when they are met. Everything cannot be done in a day, a week, or a month, so creating a task list to knock off one by one is usually an effective approach. Using relatives, friends, and professionals as resources is important to know what should be on that list for topics you aren’t familiar with.
Create a Budget
It may seem tedious but this is one of the most important pieces of a family’s financial plan. You don’t have to track every dollar coming in and out but having a detailed breakdown on where your money is being spent is necessary in putting together a plan. This simple Expense Planner can serve as a guideline in starting your budget. If you don’t have an accurate idea of where your money is being spent then you can’t know where you can cut back or afford to spend more if needed. Also, the budget is a great topic during a romantic dinner.
You will always want to have 4-6 months expenses saved up and accessible in case a job is lost or someone becomes disabled and cannot work. Having an accurate budget will help you determine how much money you should have liquid.
You want to be sure you are sufficiently covered if anything ever happened. One terrible event could leave your family in a situation that may have been avoidable. Insurance is also something you want to take care of as soon as possible so you know the coverage is there if needed.
Research the policies that are available to you and determine which option may be the most appropriate in your situation. It is important to know the medical needs of your family when making this decision.
Turning one spouse’s single coverage into family coverage is one of the more common ways people obtain coverage for a family. Insurance companies will usually only allow changes to policies through open enrollment or when a “qualifying event” occurs. Having a child is usually a qualifying event but this may only allow the child to be added to one’s coverage, not the spouse. If that is the case, the spouse will want to make sure they have their own coverage until they can be added to the family plan.
It is important to use the resources available to you and consult with your health insurance provider on the ins and outs. If neither spouse has coverage through work, the exchange can be a resource for information and an option to obtain coverage (https://www.healthcare.gov/).
The majority of people will obtain Term Life Insurance as it is a cost effective way to cover the needs of your family. Life insurance policies have an extensive underwriting process so the sooner you start the sooner you will be covered if anything ever happened. How Much Life Insurance Do I Need?, is an article that may help answer the question regarding the amount of life insurance sufficient for you.
The probability of using disability insurance is likely more than that of life insurance. Like life insurance, there is usually a long underwriting process to obtain coverage. Disability insurance is important as it will provide income for your family if you were unable to work. Below are some terms that may be helpful when inquiring about these policies.
Own Occupation – means that insurance will turn on if you are unable to perform YOUR occupation. “Any Occupation” is usually cheaper but means that insurance will only turn on if you can prove you can’t do ANY job.
60% Monthly Income – this represents the amount of the benefit. In this example, you will receive 60% of your current income. It is likely not taxable so the net pay to you may be similar to your paycheck. You can obtain more or less but 60% monthly income is a common benefit amount.
90 Day Elimination Period – this means the benefit won’t start until 90 days of being disabled. This period can usually be longer or shorter.
Cost of Living or Inflation Rider – means the benefit amount will increase after a certain time period or as your salary increases.
Wills, POA’s, Health Proxies
These are important documents to have in place to avoid putting the weight of making difficult decisions on your loved ones. There are generic templates that will suffice for most people but it is starting the process that is usually the most difficult. “What Is The Process Of Setting Up A Will?, is an article that may help you start.
The cost of higher education is increasing at a rapid rate and has become a financial burden on a lot of parents looking to pick up the tab for their kids. 529 accounts are a great way to start saving early. There are state tax benefits to parents in some states (including NYS) and if the money is spent on tuition, books, or room and board, the gain from the investments is tax free. Roth IRA’s are another investment vehicle that can be used for college but for someone to contribute to a Roth IRA they must have earned income. Therefore, a newborn wouldn’t be able to open a Roth IRA. Since the gain in 529’s is tax free if used for college, the earlier the dollars go into the account the longer they have to potentially earn income from the market.
529’s can also be opened by anyone, not just the parents. So if the child has a grandparent that likes buying savings bonds or a relative that keeps purchasing clothes the child will wear once, maybe have them contribute to a 529. The contribution would then be eligible for the tax deduction to the contributor if available in the state.
Below is a chart of the increasing college costs along with links to information on college planning.
Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally , professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, pleas feel free to join in on the discussion or contact me directly.