Are you adapting to the exhaustion and euphoria of a new baby? Or navigating middle school math homework or the terrain of teenagerhood? Regardless of where you're at in your parenting journey, these financial planning tips across all ages and stages can help ensure a secure future for you and your family.
Tips for New Parents
Build an Emergency Fund
In an ideal world, new parenthood would mean hitting 'pause' on any added financial hurdles. Unfortunately, today's economy presents a challenging climate for growing households, and it literally pays to be prepared.
An emergency fund provides a safety net for new parents who are unemployed or managing unforeseen expenses, such as medical events, and should be calculated based on your new family budget. Aim to cover three to six months' worth of living expenses, but keep in mind that starting small is better than not starting at all.
Adjust HSA Contributions
Health Savings Accounts (HSAs) are an often-overlooked pre-tax advantage that allow you to cover a range of present and future healthcare costs for you and your family. If you have an HSA, the funds in your account can be applied toward doctor's fees, infant formula, breast pumps, and drugstore baby products. Any unutilized funds you contribute will seamlessly roll over to the following year, continuing to accrue tax-free growth in the account.
Modify Insurance Plans
Welcoming a new baby into your family is considered a "qualifying life event," which typically comes with its own enrollment period - most plans require that your child be added within 30 to 60 days post-arrival. During this time, you can revise your current insurance policy or shop other plans that better fit your needs.
Ensure that your plan adequately covers pediatric care and consider buying life insurance policies to secure your child's financial future in case of the unexpected. Life insurance costs depend on your age, health, and lifestyle, but some cheaper term life insurance policies are available for a few hundred dollars per year.
Update Will and Beneficiaries
While no one wants to plan for the unthinkable, securing your children's future welfare is essential. Adding beneficiaries to your accounts and creating a will (or revising your current will) ensures the distribution of your assets and allows a legal guardian to be appointed if necessary.
Typically, individuals designate their children or surviving spouse as the primary beneficiaries of their accounts, guaranteeing that they receive any assets and funds. You can update your will and beneficiaries whenever you choose, and a notarized will can help avoid legal battles and clearly define childcare decisions.
Tips for Parents of Young Children
Invest in Education
If education savings is a priority for your household, you can begin preparing for those expensive college tuition bills early by investing in dedicated education savings accounts. These tax-advantaged accounts can grow over time, providing a financial cushion.
Check out your state's 529 plans and familiarize yourself with the offers. A 529 plan typically has a six-figure annual contribution limit, and recent laws have expanded how you can use 529 funds to encompass elementary, middle, and high school.
Budget for Childcare
Researchers at the Brookings Institution (an economic think tank) revealed that the average middle-income family with two children will spend $310,605 to raise a child born in 2015 up to age 17 in 2032.
Childcare expenses make up a substantial part of this expense, and it pays to explore all available options such as state-funded childcare, head start programs, co-op preschools, family assistance and any discounts and scholarships your family may be eligible for (such as tribal childcare and military discounts).
Foster Financial Literacy
Introduce your children to the basics of financial literacy from a young age. Creating savings goals, tracking chores and allowance earnings, and using kid-friendly debit cards for small purchases can be a useful introduction to savings and banking basics.