Congratulations, the big day has arrived!
All that planning, getting the right stroller, the right car seat, and pre-natal classes will finally get put to good use. That’s the good news. The not-so good news is that babies cost a lot of money, from diapers to food and everything in between.
And those are just the short-term costs.
What about your child’s future? Where will the money come from for their education? How will you be able to balance the financial needs of your growing family both in the short and long-term?
But before you panic, remember the best thing you can do is start thinking about it right away. Which you’re already doing by reading this article. Great job!
The truth is your family’s financial needs will only grow over time so the sooner you start planning, the better off you’ll likely be in the long run.
The best time to get life insurance is right now
One of the most important investment vehicles when considering the future financial needs of your family is life insurance. Especially since right now time is your friend.
As a new parent, time allows you to start accumulating investments for your children while they are still young. But if you procrastinate, that lessens your compounding and earning potential and can potentially reduce the savings you will be able to provide for your child.
Life insurance usually gets more expensive the longer you wait. This is because as you get older, life insurance companies may start to view your insurability as a larger risk and the cost of your premiums could be difficult for you to afford.
So by getting life insurance sooner rather than later you are taking control of your family’s financial future and taking the best advantage of the time you have to save.
Start protecting and insuring your household income
Most big-ticket items in our lives are insured. If we are in a car, we want to make sure there is a way to pay for the damage or acquire a new car. If our home needs major repairs, we want to make sure insurance will soften the blow of any large-scale expenses.
The same should be true of our incomes. Younger people can often overlook life insurance and they may think of it as a throw away benefit offered by their employer as a group plan.
But the problem with group plans is that they often provide the lowest amounts of life insurance. Plus group plans are temporary. If you leave or lose your job, your insurance ends. This could create a risky situation for your young family.
Although it is not pleasant to think about, you should consider the possibility that one of your household earners may pass before their time. What would happen then? How would the lost income be made up and how would the family maintain its standard of living?
A personal life insurance policy can help meet those unexpected expenses.
An education in education
School will likely be one of the greatest expenses you face as your child grows. It goes without saying that university or college educations are expensive, but add a private school education to the mix and the costs grow exponentially.
Most parents obviously want a better life for their children and want to see them attend college or university. The experience and opportunities it presents can be rewarding as well as help set the stage for a better career, higher income and an enhanced standard of living.
But despite the costs, college does not have to be tossed aside or considered as a privilege of the rich. Loans, scholarships and tax grants can play an important role in helping many Americans achieve their goals of a college or university education. But again, time is a key factor in putting your best foot forward.
Try asking your uncle for help
Uncle Sam, aka, the government, offers special tax advantage funding vehicles to help students (and their parents) get an education.
Education Savings Accounts (ESAs)
Education Savings Accounts let investors save for qualified education expenses through tax-deferred investment vehicles. An important aspect of ESAs is that they’re not just for college or university.
Funds can be withdrawn tax-free to pay for qualified expenses at any level – such as primary, high school, college and graduate school. ESAs also offer a wide range of investment options, giving many parents a variety of options to build a fund for their child’s education.
529 Plans are administered at the state level. There are no income limits and they offer high contribution limits, tax-deferred investment accumulation and tax-free withdrawals for any qualified education expenses (much like the ESAs do).
Some states allow contributions to be deducted from state income taxes. But each state is different and it is best to look into your home state’s plan to see if it meets the needs and goals of your children.