Quick Advice for Parents Interested in Financial Planning

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It’s not exactly groundbreaking news to say kids are expensive. According to data collected by the U.S. Department of Agriculture in 2015, the average annual cost of having a child nowadays is $14,000. That’s almost another minimum wage salary worth of costs to your household expenses.

Being smart about financial planning can make taking on the costs of raising a child easier while giving your family the opportunity to save for the things you really want in life. Of course, not every parent sits down and makes a detailed financial plan once they find out they are having a baby. It’s not unusual to let months — even years — pass before truly getting serious about their money concerns and goals. Whether you are planning for a child in the future or already have a growing family, there’s no better time than the present to start thinking about financial planning.

Creating a Family Budget

A budget provides structure to your overall financial plan. Without a fixed budget, you are vulnerable to the pitfalls of overspending. To build a family budget that actually works, separate your fixed spending from your discretionary spending. Subtract your fixed spending from your total household income and you have a good round number to work with for all the optional things your household needs.

Other things you should have in mind when it comes to creating a budget are your future financial goals. Do you want to move into a bigger house? Have a college fund ready and waiting for your kid once they graduate? Figure out how much you will need to reach these goals and put aside enough money from your discretionary fund that you will reach that goal in a reasonable amount of time.

Invest in Life Insurance

Once you have a child, life insurance isn’t optional anymore. Life insurance can make sure your child is protected and provided for if a worst-case scenario occurs and you are not there to care for them yourself. The monthly cost of life insurance varies by the overall value of the policy as well as case-by-case details. Things such as age, health, gender, hobbies and smoking habits can all have an impact on your life insurance premiums.

When looking at life insurance, understand the different types of policies:

• Term life insurance only covers a certain amount of time, generally 10, 20, or 30 years. These plans are more affordable in the short-term, but they can leave your child vulnerable if expired before time of death. Term life insurance can be renewed for another term or even converted to permanent coverage after it has been expired.
• Permanent life insurance has no expiration date. It is a good option for people who will have another financially depend on them throughout their lifetime. These policies are more costly than term life insurance, but they can be especially helpful for people with large estates. Permanent life insurance is a way to invest in your family’s future financial security after your death without having to subjugate their inheritance to estate taxes.

One major benefit to life insurance policies is that they hold a cash value. People can sell their life insurance at some point in the future as way to free up all the cash they invested in their policies over the years. Many people choose to do this with life insurance plans once they hit retirement. They buy their life insurance as a way to ensure security for their kids. As the children grow and build lives that warrant their own life insurance, the policy doesn’t really make sense as the parent reaches retirement. They can then sell a life insurance policy and use the cash to help fund their retirement plans or pad their nest egg.

Pre-Paying the Tough Stuff

If tragedy strikes and you are no longer there to be with your family, those you left behind will probably be too shell-shocked to want to deal with funeral arrangements. Planning and pre-paying for your funeral isn’t a pleasant thing, but it can make a world of difference for your loved ones should this tough situation unfortunately occur.

Pre-paid memorials are often arranged with a particular funeral home. Planning should cover everything from the particulars of a service to how you will cover the average $8,500 it costs to have a funeral. There are a few different ways you can choose to pay. A joint bank account with the funds available gives a partner access to the money when it’s needed. Of course, it also leaves the money vulnerable to being spent on something other than a memorial service. Totten Trusts, or a payable on death bank account, don’t provide the funds until the holder of the trust is dead. Selling life insurance or establishing a joint account with the funeral home are also options to consider when it comes to pre-paying for your memorial.

Being a parent is a huge financial burden, that’s why it is so important to establish a financial plan that keeps your money safe. A household budget can provide the framework for your financial plan. Knowing how much you can afford for discretionary expenses based on your total income minus fixed expenses can help you control your impulse buys and overspending. Once you have kids, life insurance is no longer optional. Weigh the pros and cons of term life insurance versus permanent life insurance when looking at plans for yourself. Finally, prepaying your funeral service doesn’t’ just help your family cover a massive expense, it can save them a lot of stress should tragedy strike.