Family and Finances: Money-Planning Tips For Parents
As new parents, you will be flooded with important choices to make. The most important of these choices is your family’s financial future. Financial planning can build security, anticipate future costs, and provide goals to ensure a happy future for all. Here are some basic family financial planning tips to get your family started.
Start a Budget
Some people never organize their financial lives. Without a household budget, people spend much more than they should and have no idea of their true living expenses. It is nearly impossible to plan for your family’s needs if you are financially in the dark. If you are not mindful of your income and expenses, you can also be burdened by stress. A budget helps alleviate that stress and can help guide decisions and set goals. If you feel like your income is lower than it needs to be, you can strive for a promotion or look to lower your expenses.
Craft your budget to include savings. Savings are essential not only for surprises but also for anticipated future expenses. For example, if daycare expenses are on your horizon, you can be ahead of the game and start saving away the anticipated cost. Then, the cost may be less of a source of stress because you’ll have a few months or so of the costs saved. Vacations are an important component of family enjoyment, but they can also be a source of considerable financial stress. This is often again because of a lack of budgeting and overspending. Saving for vacation can eliminate this stress, but so can taking financially responsible trips. Not only can you have just as much fun doing activities that are less expensive, the process can teach children about what is truly important in life.
Financial knowledge means more than understanding the debits and credits of any given month, but also having a big picture of your net worth. The biggest asset for most families is their homes. Since your home can also be a source of emergency funding through a home equity loan, always keep a running tab of its value. Use Zillow, Trulia, or other online real estate portals to keep track of recent sales in your neighborhood so you can always have a rough estimate of your home’s net worth.
Understand and Maximize Tax Benefits
New parents should also familiarize themselves with different tax benefits of having children. Revisit your personal deductions with your employer, as you may not want to be over-withholding. In addition to dependent exemptions, there are deductions for childcare costs, out-of-pocket medical expense, and other rules that affect families. The IRS has a useful site full of information specifically geared towards new parents.
Include Education Savings Early
One particular area where tax and financial planning align is in college savings. A 529 plan is a tax-free savings account for your children’s college expenses. Specific account benefits may vary by state participation, but they generally allow for tax benefits when the funds are invested and provide for tax-free treatment of interest as long as the funds are used for qualified educational expenses.
Don’t forget the importance of saving for retirement as well. Some financial planners advocate prioritizing retirement savings over college savings, since your children may not attend college and/or may not need the cash, but you will definitely need retirement income. Unlike college expense, retirement does not come with numerous options for funding.
Parenthood is an exciting time. Use the opportunity to take steps to strengthen your future through financial planning. Families are smarter and stronger when they work together within a budget, so plan for the future and make wise decisions.
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