skip to Main Content
Need Help? Call us today at +1-510-239-5021
How To Build A Financial Safety Net For New Parents

How to Build a Financial Safety Net for New Parents

If you are a brand new parent, chances are that you are going through a lot of emotions and thoughts. The worries are normal – trust me. And when it comes to finances and you have a good plan, the whole situation can make you feel a lot better.

Life insurance is key to building your safety net – with Policygenius you can get all of the deals in one place

In this article, I am going to describe how you, as a new parent, can build a financial safety net. That way, you have one less thing to emphasize. Here are the most important things to do first:

Update your emergency fund

If you don’t have one Emergency fund (or even if you do) now is the time to really start building your savings. It’s even more important if your emergency fund is small or you don’t have one. It is important that cash be put aside as the new parent. Without an emergency fund, you could put yourself and your family at financial risk (think of unexpected medical emergencies, for example).

While things like Saving for retirement and University are important (more on this below). The most important thing as a new parent is to start with an emergency fund. stored in a high-yield savings account. I recommend depositing at least $ 500 into a high-yielding emergency savings account immediately (more if you can, of course) and then setting up recurring deposits afterward. It might be difficult to make $ 500 straight away. So cut costs down wherever you can to make this a priority.

If it takes you more than a month to build a $ 500 emergency fund, I would seriously consider reviewing your budget and total spending. Find all the ways you can scrape together extra cash – whether it is Couponing, a Side hype, or Selling things in your house that you don’t use. In time, the goal is to get to a place where you have a healthy six month emergency fund. This means that you can use only your emergency fund to cover all of your bills for six months.

It sounds difficult (and it is for most of us), but it’s an incredibly important step in tackling it as a new parent. And it will be worth it in the end. Remember to protect yourself and your family from things like Loss of job, medical emergencies, or other important living expenses.

Are you a new parent How to Build a Financial Safety Net - CIT Savings Builder

To get this right, I recommend the CIT Savings Builderthat offers excellent 0.75% APY now if you deposit at least $ 100 per month to start and then $ 100 per month thereafter (you can do this even if you have at least $ 25,000 in the account).

There are also no maintenance fees for the CIT Savings Builder. In order to open an account, there is no need to deposit a specific amount. In addition, the CIT mobile app makes it easy to get around.

Are you planning for college

Are you a new parent Here's How To Build A Financial Safety Net - Plan For College

According to EducationData.orgThe average total cost for a four-year degree in 2020 is $ 122,000. The total cost (in today’s dollars) for college was just over $ 40,000 25 years ago. Now it has tripled. For example, suppose your child goes to college, 18 years may seem like a long way off.

But the longer you wait to start saving, the more you will have to save and the more likely you or your child will be dependent on student loans. Starting now will allow you to make small deposits every month that add up significantly over time. There are several ways to do this, but I recommend starting with a 529 plan, which is like an IRA (it is tax-privileged) It is only used to qualify educational expenditure.

And while they’re typically used for college, you can also use a 529 plan for things like private K-12 school, educational needs (like computers, etc), books, and more.

Are you a new parent Here's how to build a financial safety net - Wealthfront

You can get a 529 plan through your state, but another option is too Use a robo-advisor like Wealthfrontwho has 529 plans on their platform (I do that personally).

Wealthrfont goes way beyond college planning. They will walk you step-by-step through setting up your 529 and help you with all of your other college planning questions. They even help you set realistic monthly savings goals so you don’t break the budget when you later pay for your child’s college.

Make a new budget

Your budget and expenses will change (quite dramatically) once you have a child. According to the US Department of AgricultureA married family with two children, middle income ($ 59,200 to $ 107,400 per year) will spend nearly $ 13,000 per year on raising each child. Not only does giving birth cost money (one study estimates about $ 4,300), but you also need to purchase diapers, formula (if necessary), clothing, childcare costs, medical expenses, and more.

I can tell you now that as a father of two it adds up very quickly. Some of those expenses are sunk upfront expenses (like a car seat – which you must have to leave the hospital with your baby) while others are monthly expenses (i.e. food and clothing). Take these types of things into account when creating your new budget.

Are you a new parent How to Build a Financial Safety Net - MoneyPatrol

I recommend MoneyPatrol. They can help you get a complete picture of your money and your spending habits. You’ll need to connect your accounts, but from there MoneyPatrol will help organize your financial picture.

With MoneyPatrol, you can get a billing reminder, save receipts, track your investments, and take a picture of your receipts to keep for later.

Make a will

Are you a new parent Here's How To Build A Financial Safety Net - Make A Will

Look – nobody likes to think about dying, but it’s a fact of life. And if you ignore the fact that you, as a parent, MUST have a will, you are putting your family at financial risk if you die unexpectedly. It sounds morbid, but this is something you need to think about now as a parent. A will plans how your wealth will be divided in your family. It also states who your children’s guardian will be when you (and your spouse, if applicable) die.

Since I am not a legal advisor, it is imperative that you meet with one before making a will, but I can say that many people designate both their surviving spouse and children as the beneficiaries of their property. In short, you ensure that your money and other assets go to your immediate family. You can also appoint a guardian for your estate if you wish. This person will manage all of your wealth on your behalf until your children reach the age at which they can manage them on their own.

Are you a new parent How to Build a Financial Safety Net - Trust & Will

Trust & Will is an excellent option to make a will for you They will walk you through the process step by step and make it affordable too. A will through Trust & Will costs $ 69, plus $ 60 to add documents for your spouse. It offers unlimited updates for just one year, but you can purchase continuous unrestricted changes for $ 10 a year. Changes can also be worthwhile if you have to change your will or your beneficiaries at any time.

As a parent, you should think about this when you have more children later. Also, be sure to speak to your family, your designated legal guardians, and other affected parties. The last thing you would wish for if one of your friends suddenly passed away would be some unexpected news that you are now the legal guardian of their children.

Take out life insurance

Building on my slightly sick point above Life insurance is another must as a new parent. And even if you get life insurance through work, there is a good chance that there won’t be enough coverage to give your family what they need when you die.

Are you a new parent How to Build a Financial Safety Net - Policygenius

I recommend going through your work, buying what you can and then looking at one Providers like Policygenius to receive multiple offers at the best possible rate for life insurance.

Term life insuranceFor example, the average price is between $ 25 and $ 35 per month Policy genius – That’s a small cost when you factor in the cost of dying unexpectedly. But first you need to determine exactly what type of life insurance and how much of it do you need. Many experts recommend taking out life insurance that is 10 times your annual income.

Yes, that sounds like excessive coverage. If you’re making $ 75,000 a year, that’s $ 750,000. But think about what it will take to replace your income for many years to come. As a new parent in particular, you need to ensure that your child (or children) is insured through college and possibly college.

I usually recommend term life insurance as it will give you the best bang for your buck. It just covers you in case you die. Life insurance, on the other hand, offers additional benefits, but often costs a lot more (Policygenius, for example, says that their life insurance usually costs five to 15 times more than the term).

The term is really what you should be thinking about. As your health worsens over time, your rates will go up. So sometimes it pays to take out a 20 year policy when you are young and healthy. This is different for everyone and depends on their individual preferences and health situation.

Consider disability insurance

Are you a new parent How to Build a Financial Safety Net - Consider taking out disability insurance

Disability insurance is nowhere near as important as life and health insurance – especially if you are young. However, if you are a single parent this becomes much more critical. Disability insurance covers your income in the event that you become disabled and unable to work – either short term or long term (and you can buy policies for either). I recommend short-term disability insurance if you’re relatively healthy (although you can’t predict anything) as it will cost less.

Also note that you may already be able to take out disability insurance through your employer. If you don’t see your benefits, call HR and see if this is an option. If not, you can take out disability insurance separately yourself.

Update your health insurance dependents

When I had my son four years ago, I just assumed my company would know. I lived in a fantasy world where they would call me, congratulate me, add it to my health insurance for me, and give me three months off, fully paid. Aside from all the jokes, this is the furthest from the truth. After you have a baby, you need to be proactive in making sure you add it to your health insurance policy – usually within 30 days of the “qualifying life event”.

A Qualifying Life Event gives you time to make changes to your health insurance (outside of the normal open enrollment period) due to significant life changes – and have a baby is a. In some cases, you might have up to 60 days, but I never recommend waiting that long. Usually, all you need is a name (which you will hopefully have by the time you leave the hospital) and the child’s social security number (which you will usually receive in the mail after about two weeks).

Don’t wait much longer or you might forget and miss the opportunity. If you add your child within the allotted time window, they will usually be covered retrospectively. So if for some reason you need medical care for your newborn before officially adding them to your plan, they will be covered. This happened to my son, whom we had to do for some newborn tests when he was three days old. I received an invoice in the mail that was retrospectively deleted when his health insurance came into effect.

Boost Your HSA

Are you a new parent How To Build A Financial Safety Net - Boost Your HSA

A health savings account (HSA) is one of the most effective instruments not only for your health insurance but also your retirement. An HSA is a self-funded (though your employer often steps in) pre-tax savings account that you can use for health expenses for both you and your family. HSAs are usually only offered on high deductible plans. So, if you have one and have made a contribution, consider increasing your contribution once you have another family member.

Another nice thing about an HSA is that your money changes from year to year. If you can, I recommend getting the most out of it as you never know what kind of health care expenses you will have. And remember, an HSA can be used for things like prescriptions, doctor visits, prescriptions, breast pumps, and more.

Also check out a dependent care FSA

An FSA for dependent care is similar to an HSA in that it is a pre-tax account provided by your employer. Just like an HSA. FSA care contributions are automatically deducted from your paycheck, and the money can be used for qualified childcare expenses. In 2020, the maximum contribution is $ 5,000 per year for individuals or married couples filing together. Just like an HSA, it lowers your taxable income as these pre-tax contributions are made.

The main difference, however, is that dependent care FSAs must be in place by the end of the year. If not, the money will NOT roll and you will lose it. So only contribute what you know you will be using.

Be aware of new tax breaks

Are you a new parent How to Build a Financial Safety Net - Be aware of new tax breaks

The Tax Cut and Employment Act 2017 (also known as the TCJA) affects families in many ways. For example, TCJA removes the dependent exemption but keeps the idea of ​​a dependent. Simply put, that lets families claim the child tax creditalong with other tax benefits related to child birth. The new legislation doubles the child tax credit from $ 1,000 What is now $ 2,000 for each child. This gives families a great way to save more money on their taxes.

On top of that, The income limits in case credit goes down have changed for individuals and joint filers. It went from $ 75,000 to $ 200,000 for individuals and from $ 110,000 to $ 400,000 for joint filers – a significant change. This has enabled more families to apply for the child tax credit.

Other tax credits to consider on children are those Loan for children and people in need of care, as well as Earned Income Tax Credit. If you use software like TurboTax this should find these credits for you. If you don’t, make sure you have those credits and use them when and when you can.

Develop a plan to get out of debt

Look, I understand. It is a difficult pill to swallow and should be get out of debt while adding MORE financial commitments to your plate. But with a child, it’s an absolute must. I’m not saying you have to pay off all of your debts before having a child, no. I am saying that you must have a solid plan in order to do this.

The first thing you have to do is make sure you are have an emergency fundhowever, as I mentioned above. After that, you should develop a plan to get rid of debt once and for all. For things like credit cards and personal loans, I recommend these Debt snowball method, made famous by Dave Ramsey. I can’t agree with all of what Ramsey is talking about, but the debt snowball method works well for most families. For things like mortgages you should consider it Refinance To Lower Your Payment.

And if you are drowning in debt, there are options that you can take advantage of. For credit cards and loans is an option Consumer credit advice. These nonprofits can help you negotiate lower interest rates on your credit cards so you can pay off your debt faster. Either way, make a plan before you have a child.

Summary

Bringing a new baby into the family is an incredible experience – but it brings stress and new financial challenges. While I’ve only touched the very top of the surface in this article, you know there is a lot more to consider. So don’t try to cook the ocean.

Focus on the most important things first, keep your budget and expenses under control, and slowly add the other elements you need to feel perfectly financially secure with your new growing family. Remember that you have at least 18 years before your child leaves the house.

So it seems you have time to think about this stuff, but it goes so quickly. Suddenly my son is four years old and I don’t even know where the time has gone. Plan now so that you don’t cause more stress later.

Continue reading:




Source link