As you know, I generally write my own blogs but every now and then I allow others to write for me. This happens to be one of those times. In light of the death of Kobe Bryant, I thought it would be a good time to post some helpful information about being prepared. This article, in particular, is about preparing for being a parent. I know that it’s not specifically talking about losing a spouse or child, but the information provided can still be useful. At any rate, I do hope you enjoy the blog and find some information that you can use.
How to Plan Your Finances for Parenthood
No matter how you look at it, parenting is going to be overwhelming. There is so much to plan for before you become a new parent, and one of the most important facets is financial planning. With the right preparations, you can kick money-related stress right out the window and sleep a little better at night knowing you and your family will be protected.
Determine Net Worth
If you have not done so already, you will need to determine your net worth. Part of this process is calculating your assets. It’s important to know everything that you own for a multitude of reasons, including purchasing life insurance to help protect your children. These assets will include the value of your home and the amount of money in your bank account. Add up the financial value of all of your assets, and then subtract any debt you carry. If you have more debt than you have worth, it’s time to make a change. Now would be the perfect time to pay down whatever debt you can to prepare for parenthood.
Your tax situation is going to change as parents. Once your baby is born, it’s a good idea to apply for their Social Security number as soon as possible. With that number, you will be able to claim your new little one as a dependent. They do have to live with you for the whole year, so depending on when your baby is born, you may not get to claim them right away. Look into what tax credits you can apply for, as they will directly lower the amount of tax you need to pay. It applies to expenses such as child care, so keep your receipts as part of your records. Your employer may provide what is called flexible spending accounts, which allow you to remove money from your paychecks specifically for health care or child care before taxes, so you end up saving money. Every penny counts, so do ask your employer if they provide this.
Make a Budget
Even if both of you plan on working once the baby is born, it’s best to prepare for one income, just to be safe. You may or may not receive maternity leave, and it may not be long enough to truly care for a newborn. Take some time to sit down and figure out how you can pay your bills and still build your savings with only one income. Ideally, you would want to be able to put aside a few thousand dollars every year for each child, but that may not be possible at first. One way to cut down on the immediate expenses you will have is to buy things second hand. Your child is going to outgrow their clothing and toys quickly, especially in the first few years, so buying things that have been gently used can equate to huge savings over time.
Making a budget for major expenses is also essential when it comes to saving money. For instance, if you’re planning to move to a house, you’ll need to figure out how much you can afford and what type of home loan to apply for. New parents with tight budgets may want to go with conventional mortgages, which are lower cost than other loans and offer adjustable or fixed rate options.
Save for College
We are all familiar with how college and university costs are increasing. It may seem strange to start saving for college the moment your child is born, but it can be the best way to give your little one a shot at an excellent education. Luckily, there are ways you can make this easier. A section 529 savings plan can help you invest in your child’s future. These are mutual funds that allow you to invest money specifically for college, without having to worry about taxes on your earnings. Your employer may be able to set up an account to take money from your check to put directly into a section 529 plan. Another benefit is that these are not considered when your child applies for financial aid, so it will not hurt their prospects of receiving state assistance.
It may seem scary to have a child when it comes to finances, but there’s no need to panic. Take some time to figure out your net worth, make tax adjustments, create a budget, and start saving for college early. With proper financial planning and a little belt-tightening, you can prepare not only for your future, but your child’s as well.