While new parents have the best intentions, it’s not always easy to get your finances in order before a new family member arrives. Still, there are key financial items you need to tend to ASAP when growing your family. The Country School House offers the following steps to take to protect you and your little ones.
Invest in Life Insurance for One or Both Parents
Getting life insurance is one of the most significant steps you can take to protect your family. Life insurance replaces your income if anything unexpected happens to you. Though qualifying for life insurance varies by the company and policy you select, the process may be easier than you think.
For example, there is a misconception that you must pass a physical examination to obtain life insurance. But many policies don’t require an exam, like simplified issue, medically underwritten, or guaranteed issue options.
Simplified issue policies tend to involve quicker approval and fewer questions about your medical history. Medically underwritten policies do consider your medical history and any pre-existing conditions to determine coverage levels and amounts. Guaranteed issue life insurance has no health qualifications at all—though premiums may be higher. All these policies can enable you to establish a financial backup plan to replace you or your spouse’s income—without dealing with scheduling checkups or seeing a doctor.
Start Your Estate Planning
Like most new parents, you might not have a lot of wealth to distribute at this point in life. But by estate planning well in advance, you can set up a plan for your children to inherit your assets no matter when or how you pass away. You can create a will that establishes a trust—and a trustee if your children are minors—to distribute your estate to your kids if something happens to you.
Even if you are one-half of a healthy couple, naming an executor for both of your wills is a smart step. In that same vein, you should also discuss choosing a guardian for your kids if the worst-case scenario occurs. While a guardian doesn’t necessarily need to be the executor of your will, you do need to choose someone you trust to care for your kids if you can’t.
Register Your Business as an LLC
If you’re a new parent who’s also starting a new business, then you have an extra set of responsibilities to handle. First and foremost, you need to consider registering your business as an LLC. Not only will doing so provide you with tax advantages, but it will also allow you to separate your business finances from your personal finances — which can help protect your family should something happen to your business. Although most of the obligations that come with running a business will need to be handled by you, there are formation services that can make the LLC registration process in Virginia a little easier.
Set Aside Savings for a Range of Scenarios
Saving money might be challenging when you’re a new parent, but it’s more necessary than ever. Your top priorities for savings should include:
- Setting aside cash for emergencies
- Saving for your retirement
- Putting money into an account for your child’s college or future
Saving Cash for Emergencies
Most experts recommend saving enough to cover three to six months of living expenses. This is an ideal target because it can give your family a buffer if either parent loses their job. Especially for households with a stay-at-home parent, having savings for emergencies is vital. Saving isn’t necessarily easy, but you can take steps like automating contributions to your savings account, sticking to a budget, and even investing with low-risk strategies.
Saving for Retirement
You might prioritize your child’s college needs before your retirement. But the truth is that most college students qualify for financial aid—Washington Post noted that for the 2015-2016 school year, 72 percent of undergraduates received some form of financial aid. In short, your retirement should remain a priority. After all, you can’t help your child financially if you don’t help yourself first. Aim to contribute extra to your retirement, and avoid borrowing against your 401(k) or similar accounts so that your investment can grow.
Saving for College
Once you tick the boxes on your emergency savings and retirement contributions, then it’s time to consider college. You can use mutual funds, custodial accounts, savings bonds, a Roth IRA, or 529 savings plans to raise funds for college tuition and other educational expenses.
Raising a family can prove challenging in many ways, and finances are a common struggle. With these strategies for getting your finances in order, you can worry less about your children’s future and your own.
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