Parent Shares First Born Experience
Having a first child can put a family in total financial shock. It certainly did for my wife and I. My son Tyler was a little over a year and a half in age when we finally got back into our financial comfort zone. However, as parents it is now more important than ever to make prudent decisions necessary to ensure your child's financial well being.
Here is a checklist for new parents to consider addressing before or shortly after the birth of your new member of your family:
Get life insurance
Prior to the birth of our son, there was no real need for my wife or I to have life insurance. My wife is a teacher and could have supported herself financially if I had moved on to the next world and vice versa. However, this has changed dramatically since Tyler was born. I now need to make sure that my wife and son can live comfortably should I pass on. Arrangements such as day care, housing, health insurance, etc. need to be considered and a realistic budget created if one parent should die. Once this is done, you can determine the amount and types of life insurance needed.
Update your budget
Going from our dual income, no kids status, to one income and another mouth to feed sent us into financial purgatory for a few months. We were totally unprepared for the financial constraints of having our first child. Prior to your child’s arrival, you should set up a budget to determine if there will be some aspects of your lifestyle that will need to be cut back. The average family spends about $7,000 for a child’s first year of life and the financial impact does not end there. You also need to consider reduced income if one parent is taking time off work, increased insurance costs (see above), day care, etc.
Start a college savings
By putting away about $125 / month, you should have a pretty good amount set aside when the time comes for college. One way to look at saving for college is 1/3 of the cost is shouldered by parents, 1/3 is covered by loans and the remaining 1/3 can be covered by your future very capable, resourceful student.
Create a will
Very few people accept their own mortality. Because of this, very few people take the time to establish a will. New parents need to make sure they set up a will and identify a guardian for their child should both parents terminate unexpectedly. Would you rather name the person(s) who will raise your child or would you prefer someone you don't have any connection with within the probate court to make this decision? You might also consider a financial guardian to authorize the use of life insurance proceeds and other assets to raise the child.
Get a social security number
Tyler will need a social security number (SSN) for identifcation purposes and to ensure parents can claim their child as a dependent on their tax return. Without a social security number, you cannot claim your child as a dependent on your individual tax return. Consequently no child tax credit or exemption can be claimed. You will also need a SSN should your child receive gifts of US savings bonds or other financial instruments.
Open a bank account
My wife believes in segregating our son’s financial accounts from ours. If my son gets a small cash gift from his grandparents, my wife believes this must go into his personal account. We opened a checking account earning 0.0015 percent interest. It will have to happen sooner or later, so it might as well happen now.
Update beneficiary information
This is so important and worth the time in gold. Go over your various financial accounts and insurance policies and determine the appropriate beneficiary. If it is financially viable, consider leaving your tax deferred accounts (IRA, 401k etc.) to your child. This extends the tax deferring benefit in the accounts.
Get disability insurance
Consider your need for disability insurance. Statisics say a 24 year old has a 44 percent likelihood of being disabled for three months or longer prior to age 65. Very few people can endure such a financial blow. Make sure that if you are disabled in some manner, that your family’s financial future is protected. You can protect yourself from this type of problem with disability insurance.
Names have been changed.
Written by dvdscttbckr on Tuesday October 20, 2015