Starting a family is exciting and terrifying all at the same time. Now more than ever we understand the importance of planning ahead and being prepared for the unexpected. Here are a few ways you can protect your new family or prepare to start a family in our “new normal.”
1. Establish an Emergency fund
Increase your emergency savings and ideally save three to six months’ worth of living expenses within an emergency fund so you do not rely on credit cards or other forms of debt.
2. Create a Baby Budget
It would be an understatement to say all aspects of life change once a baby arrives. Create a thoughtful budget taking into consideration changes in employment, medical expenses, daycare and the extra expenses of diapers, clothing, formula etc. If you have outstanding debt, try to incorporate a plan to pay if off before the baby arrives to relieve some of the financial stress. There are several apps you can download to assist in creating a monthly budget and managing monthly spending like; Mint, Wally, Acorns and You Need a Budget.
3. Begin a 529 Plan*
It may seem far off now but, think ahead for your child in order to fund college expenses. You can set up a 529 Plan as soon as your baby is born. The sooner you start, the more your money will have the potential to grow over time due to compounding interest. There are two types of 529 plans: Pre-paid Education Plans and Education Savings Plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. Additionally, some private colleges and universities sponsor a prepaid tuition plan. Contact your Financial Planner for more information.
4. Life and Disability Insurance
This is an effective way to protect your family and provide some form of financial security in the event of an accident or worse. It is especially difficult for younger people to predict how much coverage they will need to maintain a lifestyle since they have not accumulated significant assets and most likely have not hit their peak income earning years. Choosing Term or Whole Life Policies can be daunting, but can help with replacing an income, paying down debt or a mortgage. Consult an insurance professional to discuss the appropriate policy for your family. Life insurance is generally cheaper when you are younger, so it’s better to start right away!
5. Utilize Workplace Benefits
Such as 401(k)’s or FSA’s. An FSA is a flexible spending account which allows you to save pre-tax dollars for medical expenses. A 401(k) is a tax-advantaged plan that allows employees to contribute up to $19,500 a year before age 50. Employers can match a portion or all the employee’s contributions. Investment earnings in a 401(k) plan are not taxed until the employee withdraws the money, typically after retirement. Employee contributions reduce their income taxes for the year they are made.
6. Set Up Wills and Related Documents
Once you have a child it’s not ALL about you anymore. It is imperative to plan for even the worst scenarios. Assign a guardian for your child in case both parents were to die prematurely. If possible, set up a Trust as well to establish care for the child and designate someone to manage the Trust.
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