Becoming a parent is one of the most life-changing experiences that you will ever go through. It’s also one of the most expensive! If you are preparing to become a parent, or are already a new parent, it’s important to get financial advice from professionals who can help you navigate this new phase of your life. In this blog post, we will discuss some of the things financial advisors recommend for new parents.
Start saving for your child’s education as soon as possible
One of the biggest financial goals for new parents is saving for their child’s education. Unfortunately, the cost of education is only getting higher and higher. According to a report from the National Center for Education Statistics, the average cost of tuition and fees at a private four-year college was $32,410 in 2018-2019. The average cost at a public four-year college was $21,370. And those numbers don’t even include room and board!
Saving for your child’s education may seem like an impossible task, but it’s important to start as early as possible. Even if you can only save a small amount, it will add up over time.
Open a 529 plan to take advantage of tax breaks
A 529 plan is a tax-advantaged savings plan that can be used to pay for qualified education expenses, such as tuition, fees, and room and board. 529 plans are offered by states and educational institutions, and they are one of the financial advisors’ top recommendations for new parents.
One of the biggest benefits of a 529 plan is that you can get tax breaks on your contributions. In some cases, you may even be able to deduct your contributions from your state taxes. Additionally, the money in a 529 plan grows tax-free, and withdrawals are also tax-free as long as they are used for qualified education expenses.
Make sure you have life insurance in case something happens to one or both parents
Another financial recommendation for new parents is to make sure you have life insurance. This is especially important if one or both parents are the primary breadwinners of the family. If something happened to a parent and they passed away, life insurance would help to financially protect the family.
Most financial advisors recommend that you purchase term life insurance, which is a type of policy that provides coverage for a specific period of time (usually 20 years or 30 years). Term life insurance is more affordable than other types of life insurance, such as whole life insurance, and it can be tailored to meet your specific needs.
A trusted Direct Lenders suggests that you purchase life insurance through an independent agent in order to get the best coverage at the most affordable price. Independent agents are not tied to any one insurance company, so they can shop around and find the best policy for you.
Get a head start on retirement savings, especially if one parent is staying home with the baby
Another financial tip from Algernon Ronson of Oak Park Financial for new parents is to get a head start on retirement savings. This is especially important if one parent is staying home with the baby and not working outside the home. In this case, it’s even more important to make sure that both parents are saving for retirement.
There are a few different ways to do this. One option is to open a Roth IRA. A Roth IRA is an individual retirement account that allows you to make after-tax contributions. The money in a Roth IRA grows tax-free, and withdrawals are also tax-free in retirement. Another option is to participate in your employer’s 401(k) plan. If your employer offers matching contributions, be sure to take advantage of this benefit.
Review your budget and make changes where necessary
Finally, financial advisors recommend that new parents review their budget and make changes where necessary. This may include making changes to your housing situation, transportation costs, and childcare expenses.
If you’re not sure where to start, there are a number of online resources that can help you create a budget. You can also work with a financial advisor to create a budget that fits your unique financial situation.
No matter what financial changes you need to make, it’s important to start as soon as possible. The sooner you start, the better prepared you’ll be for parenthood.