Having a child is one of the most exciting occasions anyone can ever experience. Bringing new life into this world and watching it prosper is what every parent wants. But that’s only part of it. Parenthood is one of the most difficult responsibilities you’ll ever have in your life, especially when your children are older. This is why it’s crucial that you plan for your children’s future. The best part is you don’t have to wait until you’re pregnant to start planning. In this article, we’ll be helping aspiring parents prepare for their child’s future.
Start a 529 Savings Plan
A 529 savings plan is a special type of investment where you can contribute funds to the college education of a beneficiary. In this case, it’ll be your child. It can also be compared to a savings account as well. This investment does more than simply pay for a college education, however. For one thing, it offers considerable tax benefits. The money you deposit is tax-deferred, which means nothing will be deducted until withdrawal. You may be wondering why opening this is important if the child isn’t even born yet. This is where another benefit comes into play; you can open the account in your name until you give birth. Once your child is born, you can then immediately add them as the primary beneficiary.
Cosign on Their Student Loans
Combined with the 529 plan, you might feel that cosigning your child’s student loans is a bit much. However, a college education is nothing to scoff at. It can be very difficult for your child to get accepted as well as it’s difficult to pay for an advanced degree, like a master’s or Ph.D. Cosigning is also another process where it seems like only the beneficiary benefits, but that’s also not the case. Like the 529 plan, you, as the cosigner, could be entitled to a considerable tax break. More specifically, you can write off on your taxes, which can increase your chances of getting a refund during tax season.
Get Your Own Finances in Order
It should go without saying that having children is going to cost you your fair share of funds. In fact, did you know that most parents spend an average of $25,000 to as much as $60,000 during the first year? This is plenty money to spend, which is why you need to be financially prepared before anything else. Make sure you have a strict budget set in place with the 50/30/20 rule. Having savings is going to save you from a world of issues down the road. It’s highly recommended that you have in your bank account or on credit cards, before having your child. If you do find yourself in a pinch, you can always apply to take out a personal loan, which can be used for anything you need.
Build an Emergency Fund
Life can be unpredictable at times, especially when children are thrown into the mix. Unfortunately, not all the surprises life can present you with are beneficial. You never know when something catastrophic can happen, which is why it’s critical that you have an emergency fund. Emergency funds are when you have a reserve of money set aside for dire situations, such as if you, your spouse, or your child could require medical attention due to an illness or injury.
Medical bills, especially when hospitals are involved, can be very expensive when you don’t have insurance. Another scenario would be not having enough money to cover all the monthly expenses such as groceries, rent, and paying utilities. While there’s virtually no limit to how much you should put into an emergency fund, it will vary based on your lifestyle, income, and household. Ideally, you want to have around six months’ worth of expenses saved. If that’s too much for you currently, then you should aim to have at least three months instead.
Purchase Life Insurance
This isn’t the most pleasant topic to talk about, but one day, your child will have to survive without you. Luckily, you can even prepare them for that by purchasing a life insurance policy. Life insurance secures the beneficiary in the event of the policyholder’s death. How much they receive will depend on the type of policy you’ve purchased.