When anticipating becoming a new parent, you may never feel like you are fully prepared. The list of things to think about seems endless. While you are researching pediatricians, schools, and parenting advice, remember that appropriate financial planning is essential to providing your child the best possible start in life. Sit down with a qualified financial planner to discuss how you can take full advantage of benefits available to you and structure your finances to provide maximum security for your growing family. Be sure to address a few key issues while you are awaiting your new arrival.
Plan for the Expected
Work Out Your Budget
If you do not already have a budget, spend some time figuring out your regular monthly expenses and income. Even if you already operate with a budget, begin to list the additional expenses you can expect, including child care, medical expenses, diapers, clothing, and additional housing expenses if you are planning a move. Also account for any lost income you anticipate from parental leave or staying at home for an extended period to care for the child.
With today’s astronomical health care costs, medical insurance is a must. If you are pregnant or trying to become pregnant and do not yet have medical insurance for yourself, obtain it as soon as possible. Even if you do not have an employer-sponsored health plan available to you, new changes to health insurance law may make health insurance more affordable than you think. For information on how the Affordable Care Act could affect your rates, visit https://www.healthcare.gov/marketplace/individual/.
Once you have your own medical coverage squared away, be prepared to add your child to your plan within 30 days after the birth. Filling out as much paperwork as possible before your due date will make this process much more manageable. If both you and your spouse have medical insurance, look at each plan to determine which has the best rates and terms for dependent or family coverage.
The medical expenses associated with fertility, pregnancy, and childbirth can be high. Take a close look at your income and medical expenses to determine if you can benefit from claiming a medical expense deduction on your taxes. http://www.irs.gov/pub/irs-pdf/p502.pdf gives details for the 2012 tax year. Keep checking the IRS website for updated information for 2013.
You may be eligible for a child care tax credit. See http://www.irs.gov/taxtopics/tc602.html for details on qualification and limits.
Depending on your income and family size, you may also qualify for the Earned Income Tax Credit. For 2013, the income limit for a couple filing jointly with one child is $43,210. See the most recent limits here.
Find out if your employer offers special benefits, such as a dependent care flexible spending account. These accounts allow you to set aside a certain amount allocated to child care costs while lowering your taxable income.
Although your new arrival is probably the first person on you mind right now, you must also save to take care of your own needs. Have a retirement plan in place along with your child’s college savings plan. Our financial planning professionals can give you complete information on both college and retirement savings options.
Consult with your financial advisor to determine the best way to allocate your income so that you can best ensure both your financial security in retirement and your child’s educational opportunities. When prioritizing these funds, remember that while loans are available at fairly good rates for education, no one is likely loan you money to fund your retirement.
Plan for the Unexpected
Before tying income in long-term savings for college and retirement, you should first put an emergency fund in place for those unexpected expenses that will spring up in the meantime. This will save you the additional cost of penalties you might otherwise incur by taking out loans or withdrawing money early from long-term savings plans to cover immediate expenses.
Life insurance is a basic way you can ensure that your child can get what he or she needs in case you are unable to be there to provide it. If you are the family breadwinner, the need for life insurance is obvious, but it is important even for an at-home parent. If you rely on one spouse to take care of the child and household tasks while the other earns the family income, the work done by an at-home parent who dies prematurely would need to be done by someone else. That would likely mean both paying care providers and less time available for the surviving parent to do income-generating work. Consult with a financial planning professional to determine appropriate coverage for both you and your spouse.
The experienced financial planning professionals at Boelman Shaw Capital Partners can help as you plan for the arrival of your new family member. Contact our Des Moines office to set up a plan that is individualized to meet your family’s needs.
Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.