When you first enter adulthood, often your only thought for financial planning is a small savings account. Once you bring a child into the world, your financial picture changes dramatically. There are a ton of new expenses and concerns. While there may be surprise costs throughout their childhood, there are ways to be prepared. The secret to avoiding undue stress is getting your finances organized. Check out this great list of financial tips for new parents.
Financial Tips for New Parents | Saving for the Future
Prepare a Detailed Budget
The first step in financial planning is understanding your income and expenses. Make yourself up a document that contains all your income on one side and all your costs on the other. Try to include everything as much as in detail as possible.
This list includes loans, mortgage, clothing, food and groceries, utilities, and medical treatment. For most young parents, this includes expenses for the baby, such as infant formula, diapers, and so on.
By analyzing your costs, you can find out where your money is going and try to cut back on some non-essential items to balance the budget. If it is hopelessly out of sync, you may need to take up an additional job or even move out to a less expensive home.
Build an Emergency Fund
You never know what is going to happen the next day. Falling ill or even losing your job can seriously derail your finances. Having that arise can be pretty scary when you have a family to look after. The only way you can avert a crisis is by creating an emergency fund.
Ideally, the size of the fund should be three to six times your monthly expenses. According to bankrate.com, as many as 60% of Americans would not be able to pay for an unexpected expense of $1,000 from their savings.
For some, the ability to save is being compromised due to a high level of debt. In this case, consider seeking the assistance of debt relief and management companies like Nationaldebtrelief.com. That way, you can prevent being snowed under by increasing debt.
Re-Cast Your Health Insurance Coverage
In the case of a new addition to your family, you will need to inform your insurance company. Call your agent and request for your newborn to be added to your plan. Most insurers require such information to be shared, and the baby added to the insurance plan within 30-60 days of birth.
When you do this within the specified time frame, the coverage will be extended retroactively. Retroactive means that any complication that the baby might have had post-delivery will be covered.
Doing research can save you money on your insurance. Sometimes, you can end up paying less by one parent, adding the baby to his or her plan. Then the other parent takes out a separate policy compared to the entire family being covered under a single plan.
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Make Use of Tax Breaks
Most people may not be aware of it, but the government provides tax benefits that can ease the strain of raising a family. The Child Tax Credit can be availed of for dependents below the age of 17 up to $2,000 per dependent. However, you need to have an earning of at least $2,500 with the upper ceiling being $200,000 for single filers and double that for joint filers. Another good thing is that if your tax liability is nil, you will get a refund of the amount up to a maximum of $1,400.
You can also get a tax break with the help of the Child and Dependent Care Credit. If you have incurred expenses on a babysitter, daycare center, summer camp, or any other childcare provider, then this applies. However, this is only applicable for children under the age of 13, though disabled children of any age can be added.
The credit is 35% of the qualifying expenses of $3,000 for one child and up to $6,000 for two or more dependent children.
Purchase Term Life Insurance
Becoming a parent is a life-changing event because, suddenly, your life has become multi-dimensional. At this point, it may be unlikely that you are paying any thought to your mortality. However, if your spouse and children are financially dependent on you, it’s time to plan.
While it may be tempting to obtain whole life policies that include a certain extent of investment, these policies usually are costly. It is wiser to consider term insurance at a time when your budget may already be under stress as these are comparatively cheaper when you are young and healthy.
Buy Long-Term Disability Insurance
Life insurance protects your family in case of your untimely death. However, your income could also be severely affected if you are not able to work due to sickness or injury. You should consider purchasing disability insurance, which is structured to pay out a certain percentage of your income for a pre-determined period.
When selecting a policy, you should carefully take into account factors like your income, expenses, and existing savings. Remember, your costs are bound to grow fast as your family grows. You should select a conservative plan that pays out the most when you are unable to earn due to disabilities.
Financial Tips for Busy Parents
Bringing up and taking care of your family has never been an easy task. However, with the current economic scenario being incredibly dynamic, the challenges have grown manifold. When planning a family, it is essential to appreciate that it can be a costly affair. You should budget wisely and think proactively on how to safeguard your family the best.