3 Financial To-Do’s When Having Children
Five years ago, Allisha Curtis wrote a blog titled “Preparing Financially to Start a Family”. This was a great blog for couples thinking about having children. The intention with this piece is to keep this topic top of mind and highlight three of the more important things for young couples to do once they have children.
Having a child is a life-changing experience. It is filled with joys and challenges. While there are countless books on parenting and what to expect, there is no manual. Nothing will fully prepare you for that reality and everyone’s experience is unique to them. No matter what your experience is, changes in life can be stressful and difficult. Part of the stress with having children comes from the financial burdens associated with children. Getting some of these matters in order can take some of that burden off your shoulders. Here are three of the more important financial items to address when having children:
1. Execute estate planning documents.
a. Update Beneficiaries
Make sure your beneficiaries are up to date on your retirement accounts.
b. Last Will and Testament
It is vital to draft a will so you can indicate who receives your assets upon your death and appoint guardians for your children. You do not want to leave these important decisions up to the state.
c. Consider creating a living trust to help you with avoiding probate at death.
2. Make sure your family is insured.
As your family begins to grow, it is imperative that you are adequately insured. Adequate insurance means your family will not struggle financially in the unforeseen event of health issues or death.
a. Health Insurance
Having your health insurance properly set up is key. If you have your insurance through an employer, update your plan to include the new members of your family. Review your plan to understand the costs and benefits for prenatal care, hospital care, and pediatric care.
If you do not get your insurance through an employer plan or you will be losing coverage to cut back and care for the children, review your options ahead of time and find the best policy. The best plan for an expecting couple or young family may not be the one you currently have. Matching health insurance to desired doctors and facilities is a place to start, but also understanding costs of prenatal visits, out-of-pocket cost of delivery, and the possibility for doctor co-pays should also factor into your decision.
b. Life Insurance
While some couples may have sufficiently large assets to self-insure, the reality is most young families will need some assistance in the event of death. Buying a term life insurance policy is the most cost-effective place to start. This will be the lowest cost option and you can decide the terms that best suit your situation. Getting a term policy established when you are young is beneficial as rates will rise as you age and become less healthy. You can also stop paying the policy premium and let the policy lapse once you have sufficient assets.
c. Disability Insurance
Review your disability coverage at your place of employment. If your employer does not provide coverage, it is worth looking into buying an individual policy.
3. Begin investing in your child’s education.
Saving can become increasingly hard as family expenses grow but investing in your child’s education should remain a priority. Contributions do not have to be huge; there is no shame in starting small. The shame comes in not starting early on. Open an account and set up regular contributions. Your child will thank you one day. Here are a couple of places to start saving:
a. 529 Savings Plan
The 529 Plan is a great savings vehicle. The assets grow tax-deferred while in the account, and if used for qualified education expenses the withdrawals will be tax-free. 529 plans give the account owner control until the money is withdrawn. The account owner also has flexibility with a range of included education expenses and ability to change beneficiaries.
Here are a couple resources for reference: What is the Best 529 Plan for You, Spending a 529 College Savings Account – Best Practices, and Closer to College –Key 529 Plan Facts.
The Coverdell Education Saving Account (ESA) is another excellent choice to begin saving for your children’s education. It has similar tax advantages to the 529 Savings Plan but differs in some of its details. For example, there are income restrictions, an annual contribution limit of $2000 per child, and less flexibility on what is considered a qualified educational expense. On the other hand, you are not limited in your investment choices like a 529 plan.
Starting a family should be a special and joyous time. Get prepared financially by checking off these important items and do not let the financial burdens weigh on you. At THOR Wealth Management, we provide holistic financial planning which includes education planning, estate planning, and insurance review. Contact us today if you have any questions or need assistance.