5 Steps New Parents Should Take to Protect Their Family’s Financial Life
Who will take care of your children if you pass away? If you die, will your family be able to keep a roof over their heads? These are just a couple of the important questions you need to answer once you start a family. If you have children and you haven’t taken care of the following five matters, don’t wait—start preparing today.
1. Increase Your Emergency Savings
With a baby in the picture, you’re more likely to encounter unexpected bills. Whether your child falls ill, your air conditioning stops working, or the family car breaks down, you’ll want to have cash to solve the problem quickly and without debt. Build up your emergency fund to at least three months of living expenses (more if you’re a single-income household or self-employed).
2. Plan for Childcare Costs
The cost of daycare rivals that of college tuition. If you’re a two-parent household, calculate whether you can afford to live on a single income until your child is older. Other options include changing work schedules so one parent is always home or accepting a part-time job that permits working from home. If childcare is a must, shop around for a good deal, use a Dependent Care Account to get a tax break on childcare costs, and take advantage of the childcare tax credit. Care.com suggests additional ways to save on childcare.
3. Write or Update Your Will
Everyone ought to have a will, but parents need to have a will. A will not only distributes your assets in the event of your death, it also appoints guardians for minor children and creates trusts to ensure children are cared for. If you have a lot of assets, you’ll want to work with a lawyer when writing your will. However, if you have few assets and just want to ensure your children are protected, you can use an online service to create your will.
4. Buy Life Insurance
Even if you don’t have a lot of assets, you can still provide for your children if you die while with a life insurance policy. If you’re a stay-at-home parent, you still need life insurance so the surviving parent can afford childcare in your absence. When you’re young and healthy, life insurance policies are cheap: According to CreditDonkey, “the average 35-year-old pays only $159 per year for a $250,000, 20-year term policy.” However, paying more may pay off: If you opt for a whole or universal policy, or convert a convertible term policy before it runs out, you can accrue cash value and sell the policy to free up money for retirement. While regular-term policies have lower premiums, your investment is lost once the term expires. Make sure you understand the pros and cons of different policy types before buying.
5. Plan for Your Funeral
In the unfortunate event that you pass away unexpectedly, your family will likely be too grief-stricken to plan the details of a funeral service, let alone pay for it. You can relieve this burden by pre-planning funeral expenses. There are several ways to do this. You can create a joint account or payable-on-death bank account, purchase a final expense insurance policy, or buy a pre-need plan with a funeral home in your community. Each option has its pros and cons, so do your research before choosing.
You plan on always being there for your children, but life doesn’t always go as planned. As unpleasant as it may be to discuss worst-case scenarios, handling these matters is a big part of providing for your family. If you’ve recently welcomed a bundle of joy or you’re planning to start your family, make sure these items are on your to-do list.
Article by Sara Bailey
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