When you first enter adulthood, often, your only thought for financial planning is a small savings account. Your financial picture changes dramatically once you bring a child into the world. 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
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 in as much detail as possible.
This list includes loans, mortgages, 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 determine 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 move 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 scary when you have a family to look after. The only way to avert a crisis is by creating an emergency fund.
Ideally, the fund size should be three to six times your monthly expenses. According to bankrate.com, as many as 60% of Americans could not 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
You will need to inform your insurance company about a new family member. Call your agent and request that your newborn is 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.
The coverage will be retroactively extended when you do this within the specified time frame. Retroactive means that any complications 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 their plan. Then the other parent takes out a separate policy compared to the entire family covered under a single plan.
Check out this link for information on disability insurance: meetbreeze.com/disability-insurance/
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 available for dependents below the age of 17 up to $2,000 per dependent. However, you need to earn at least $2,500, with the upper ceiling being $200,000 for single filers and double for joint filers. You can check the 2022 tax brackets here to see which bracket you fall into based on your income and filing status. Another good thing is that if your tax liability is nil, you will get a refund of up to a maximum of $1,400.
You can also get a tax break with the help of the Child and Dependent Care Credit. This applies if you have incurred expenses on a babysitter, daycare center, summer camp, or any other childcare provider. However, this only applies to children under 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 considering your mortality. However, it’s time to plan if your spouse and children depend financially on you.
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 when your budget is already 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 cannot work due to sickness or injury. It would be best to 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, consider your income, expenses, and 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 cannot earn due to disabilities.
Financial Tips for Busy Parents
Bringing up and caring for your family has never been easy. However, the challenges have grown manifold, with the economic scenario being incredibly dynamic. When planning a family, it is essential to appreciate that it can be costly. You can also check out information about CDs or CoDs – a particular type of savings account with a guaranteed rate of return over a specific timeframe so you can raise your savings even while you sleep! You should budget wisely and think proactively about safeguarding your family the best.