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Kids are expensive — there’s no way around it. But when you start growing your family, you have to think about both current and future costs. From saving for college to prepping for your retirement, these are the financial moves new parents need to make. My Little Baby Bug would like to thank our friends at TheWidow.net for providing these great strategies for our #Tips4Mama series.
Make Sure Your Family’s Finances Are Secure
As long as you’re around, your family will be taken care of. However, what if something unexpected happens to you? In that case, keeping your family above water means having a smart backup plan. Savvy parents know that two things help plan for “just in case” events: establishing a will and taking out a life insurance policy.
Estate planning, which involves setting up a will and deciding who will inherit your belongings, is a crucial element. Generally speaking, you can establish your spouse as the executor so that your kids are protected. For single parents, choosing someone you trust to handle your children’s inheritance is essential.
You’ll also need to think about life insurance. Term life insurance, for example, lasts for a set period — say, until your kids turn 20 — and ensures their financial solvency if you die. The cash you leave behind can make up for your lost income, help manage bills and funeral expenses, and even provide a boost to your kid’s college tuition.
Think About Your Own Future
While planning for your own death is a smart idea for your kids’ future, you’ll need to consider the alternative. Assuming you’re still around come retirement age, having funds to care for yourself is handy. By planning for your retirement now, you can avoid placing that burden on your children as they’re entering adulthood and starting their own families.
Most working adults know they need to invest in their retirement funds if their employers offer such a deal. If they don’t, you’ll need to investigate an IRA account or similar fund — or find a job with acompany that offers better retirement options. However, you should also consider boosting your retirement package withstrategies like increasing your investment by 1 percent (even small amounts help) or dropping your tax refund into your 401K.
Putting this cash aside can pay off when you reach retirement age. Also, plan to keep working until full retirement age for the best-case scenario when it comes to benefits. Regardless of whether you have a retirement package, you’ll be able to file forSocial Security benefits at 67.
In addition to setting aside money for your future, if you have yet to purchase a home and it’s at the top of your to-do list, it’s time to start saving for a down payment. Typically this can be as much as 20% of the home price, but depending on the loan you could have a smaller down payment. Either way, securing a home requires some financial forethought.
Start Small to Build Your Savings
Experts say that you should have about six months’ worth of household expenses. With young children, though, that’s easier said than done. In fact, CNBC notes that couples (and singles) without children tend tosave a lot more than families. Either way, unexpected bills or your car breaking down can drain your savings in a snap.
Setting abudget each month can help you see where the money is going — and where you can start saving. Even a few dollars each week, pay period, or month can add up. The Balance also recommendsinvestments like brokerage accounts or Roth IRAs for families.
Make Sure You’re Getting All Possible Tax Benefits
Parents may have more expenses than non-parents. On the flip side, parents do receive special tax benefits that singles and couples don’t. You and your spouse — as applicable — can receive all manner of credits on yourtaxes. For example, you receive dependent deductions plus child tax, child and dependent care, earned income, adoption, education, and even student loan interest credits. Your end-of-year tax refund could be larger than you expect, meaning you can re-invest it in your retirement or your children’s education.
Being a parent is expensive, but that doesn’t mean it’s without rewards. And even when you’re shelling out for diapers, clothes, shoes, and everything else kids need, there are ways you can set aside funds for your family’s future.
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Written by Sara Bailey for Baby Bug, LLC DBA My Little Baby Bug.
