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Financial Planning for Parents 101
Once you decide it is time to be a parent, financial planning is a smart idea. You can’t control what life throws your way, but you can control your resources. Use these helpful tips to get into good financial shape as you embark upon parenthood.
Evaluate Your Assets
Before you can plan ahead, you have to know where you are. Go over your assets including cash, accounts receivable, retirement funds, property, stocks, bonds, patents, and copyrights. If this all seems overwhelming to you, consider hiring a financial planner that can help you craft a personal financial statement you can use as a base for your decisions going forward.
Start a Budget
The word “budget” certainly doesn’t elicit ideas of fun times, but if you want to start saving for your child’s future, it is a life essential. Set aside how much money you have to spend on the fixed costs of life essentials such as rent (or your mortgage), insurance and taxes. Most of us have little or no control over how much we have to pay on those things. From there, you can find ways to cut costs on the rest of the things you spend money on. Take the money you save and put it aside in a savings account you can access for your child should you need to.
When you become a parent, the days of shrugging off minute expenses such as ATM fees are behind you. Cutting down on costs in all areas of your life can add up in the long run. And each one of those pennies you pinch can be stowed away for your child’s future.
Think about it. Say you cut $5 off your daily expenses somehow — let’s say brown bagging your lunch instead of buying something from a restaurant. If you started that action on the day your child is born, setting aside the dollars you aren’t spending in a savings account, you would have a large chunk of their college tuition paid off. Just $5 a day for 365 days, over 17 years adds up to $31,025, and that’s before any interest you’ve earned.
Other ways you can cut costs and save money for your child’s future:
Establish Legal and Financial Protections
Things such as a will and a good life insurance plan will protect your child in case the unthinkable happens and you can’t be there to do it yourself. Make an appointment with an attorney and make updates to your will with every major life change such as marriage, divorce or a new child.
When it comes to purchasing life insurance, there are three basic varieties: term, universal and whole life. While term life insurance is more affordable, it eventually expires and no benefits are paid out after that time. Whole life insurance lasts — you guessed it — the entire lifetime of the policyholder. Universal combines aspects of both whole life and term life insurance. When choosing your life insurance plan, make sure you understand the different cash values and premiums available. With some plans, you can sell your insurance at retirement as a way to free up cash, so it basically acts as a savings plan. If you’re looking into term life insurance and want an idea of cost, try using this rate calculator to see what you could potentially pay.
The costs of raising a kid shouldn’t keep you from having one, but a little financial planning is a smart idea. Evaluate your assets and establish a budget that allows you to put dollars away for your child’s future and emergency costs. The money you save doing things such as bringing your lunch or turning off the lights add up. Beyond a working budget, protect your child with a will and life insurance that make sure they are financially set in a worst-case scenario.
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