Photo Credit: andibreit, Pixabay
This is a guest post by, Jackie Waters. Who blogs at hyper-tidy.com
Before you start thinking of ways to save for your child’s future college expenses, it’s important to first get your own finances squared away as a parent. These include your insurance, emergency funds, and retirement money. Saving for college is important, but be sure you’re not skipping more important financial steps.
According to Forbes, financial planning as a parent starts before the baby is born. Since you’ll need to add your baby to your health insurance plan within 30 days of her birth, make sure you study up on your plan. “If you and your spouse have separate individual coverage, compare options to see which plan provides the best and most affordable family coverage,” recommends Forbes.
Even if you’re in your 20s or 30s, you should still have life insurance, especially if you have children. Obviously it’s scary to think about something happening to you at such a young age, but isn’t it scarier to think about what would happen to your family if you were to pass, and they couldn’t afford to keep their home or live securely? “As uncomfortable as thinking about your death may seem, it’s gravely important to concentrate on what you and your family would lose without life insurance,” says Bankrate.
Will and Trust
In your will, appoint a guardian who would step in to be your child’s parent if something were to happen to you. This is a vital step. Otherwise, you’re leaving the decision up to a judge. Nolo recommends naming one personal guardian and one alternate (in case your first choice can’t serve) for each of your children. You can opt to choose one person to be the guardian and a different person to look after financial matters for your children. You might want to consider the type of neighborhood the potential guardian lives in so that you can ensure your children can grow up in a safe place.
Although setting up a trust could cost a few thousand dollars, it’s better to be safe than sorry warns Forbes, so plan to save money toward it. In some states, it’s crucial to set up a trust because if you have more than a certain amount in assets, they could be tied up in probate court. If that happens, your child will pay high fees. Speak to a local estate planning attorney for more information regarding wills and trusts.
Emergency Funds and Retirement
The biggest mistake new parents make is starting to save for college immediately without considering their complete picture. While you may be eager to start a college account, don’t forget about what financial planner Kristin Harad refers to as your “bookends.” Your two bookends are a short-term emergency fund and a long-term plan for retirement.
“While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months’ worth of expenses,” suggest Wells Fargo. Savings accounts are the best options for emergency funds so that they can be accessed easily without taxes or penalties. If you place emergency savings in mutual funds, stocks, or other assets, they may lose value if the money needs to be accessed quickly.
Retirement may feel far away when you’ve just had a baby, but you’re doing your child a huge disservice if you don’t plan ahead. You can always borrow money for your child to go to college, but you cannot borrow money to retire. You don’t want to depend on your child to care for you later in life. Speak to a financial planner about your options for retirement savings.
Don’t forget to consider your own fun and entertainment in your budget. Vacations and date nights are investments in your relationship. Your relationship can quickly head south if you don’t focus on it. The point is to not jump the gun on saving for college. Your financial health and future should be solid first.