As you prepare for life with a new child, it may be time to adjust your family’s financial plan. You'll want to consider how your child will affect your budget, make sure you have adequate insurance, protect your child's future with a well thought out estate plan and determine how having a child will affect your income taxes. Below are a few tips for helping to ensure financial success as your family grows.
Develop a new spending plan
The birth or adoption of a child is an opportunity for you to set up a new budget or review your existing one. You'll have to consider the impact your child will have on your living expenses, account for any potential shift in income and plan to save more money to ensure that your family has enough to meet its future needs. You’ll also need to consider budgeting for increased expenses, such as groceries, housing, transportation, medical and childcare to name a few. It’s also wise to begin saving for your child's education as early as possible.
Saving for emergencies
If you don't have an emergency fund, now is the time to set one up—children get sick, cars break down. An emergency account should normally contain an amount that equals three to six months' worth of living expenses but will, of course, vary depending on your financial situation.
Estate planning issues
Estate planning is a subject many parents would like to avoid. After all, you're celebrating, and it's sad to think that you may not be around to raise your child. However, it's crucial to the welfare of your child that you leave behind instructions that clarify your wishes in the unlikely event that you die before your child grows up. You should also review your beneficiary designations.
Each parent should have a will to ensure smooth distribution of his or her estate. You should review your will (or draw up a will if you don't already have one) to make sure that your assets are distributed as you would like, to nominate a guardian for your child and to choose an executor for your estate.
Setting up a trust can be a good way of passing your assets along to your child. A trust document lists how you want any money left to your children to be spent, and it can ensure that your child's money is protected. It can also help the guardian manage assets and make sure that estate funds are used to benefit your children according to your wishes.
Insurance issues
Review your insurance coverage to make sure that you and your family are adequately protected. If you or your spouse plan to leave your job(s), you may lose your benefits from that job. With a child in the picture, you may also want to consider purchasing or increasing life insurance coverage.
Health insurance
Make sure you know what the cost of adding a family member will be and when they will be eligible for coverage. And if a Health Savings Account (HSA) is an option, evaluate this possibility. It can be a great savings tool. If both you and your partner are covered by or eligible for coverage under an employer-sponsored policy, consider which policy offers the best—or most cost effective—family coverage.
Disability insurance
To protect your family in case your income is reduced due to disability, consider purchasing disability insurance if you don't already have it. You may have a group disability policy through your employer, or you may want to purchase an individual disability insurance policy. A disability policy won't replace your total income, but it will likely replace 50 to 70 percent of your earnings.
Income tax considerations
At tax time, you may be eligible to claim certain tax credits that can help reduce the cost of raising a child. Credits include the child and dependent care tax credit (if you have qualifying child-care expenses), the child tax credit and the earned income credit.
There is a lot to consider when planning for the financial stability of your family’s future. Asking for help from trusted professionals during this process will ensure that your child has every opportunity to lead a comfortable and prosperous life. To learn more about the comprehensive services offered by Busey Wealth Management, visit busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.
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