As a parent you have many financial responsibilities to balance. Get started by creating a will and saving for the future.
Create a will. Use either an online program or hire a professional to name your child’s guardian and to designate at what age any payouts, savings, or investments will be distributed.
Health insurance. If you are a new parent, notify your employer within 30 days of the birth of your child to ensure that the child is eligible for any dependent benefits.Purchase healthcare if you don’t already have it.
Life insurance. If you are employed, review your employer’s life insurance plan and determine if it is adequate for your needs. If your employer does not offer a plan or yours is inadequate, consider purchasing additional life insurance.
Child care. Consider establishing a flexible spending account (FSA) if one is offered by your employer. Parents can use pretax dollars to pay up to $5,000 in child care expenses in most states. You can also consider other ways to save on child care costs
College savings. Save what you can, when you can. Consider saving $100 a month starting when your child is born. If you want absolute safety you have very few options. Savings accounts offer guaranteed interest rates in the 1 to 2 percent range, but that rate is less than the inflation rate.
While your children are young you have the opportunity to assume more risk through investments with the possibility of a much greater return. Many well-diversified mutual funds have generated double-digit returns lately. However, many have suffered similar losses as well. With a 6 percent annual return your $100 a month investment could grow to $38,200 by your child’s 18th birthday. An 8 percent return could generate as much as $48,000.
Many states now offer 529 plans. These plans generally offer a limited number of mutual funds that are selected by the plan managers to assume more risk (and maybe more return) in the early years and less risk as the child approaches college age. Learn more about college savings options here.
Short-term accounts. Put money for short-term expenses (one to five years) in safe investments such as savings accounts and certificates of deposit (CDs). These low-interest-rate investments will not grow dramatically, but they will not lose money, either. Keep accessibility in mind: Will you be able to tap the investment when you need the money?
Long-term accounts. Money you will need beyond five years should have the opportunity to grow—at a risk level you are comfortable with. Use a combination of super-safe, steady-earning savings accounts and more volatile stock and bond mutual funds to provide flexibility in timing your withdrawals. This strategy can help protect you against having to take losses when you don’t want to.
Adding another member to the family can be exciting—and a little intimidating. Prepare yourself and your household before the arrival of your child, and help put them on the path to a secure financial future.
Content Provide By: Cash Course