The following post is by guest writer Jacques C. Sprenger. Please see his author bio at the end of the article.
Raising a family is not a course offered in college and it should be. Many couples feel financially confused when the first baby arrives. “How can we plan ahead for our children and for us in such a way that everybody’s needs will be satisfied?” The answer of course is neither obvious nor easy. Circumstances often dictate the financial measures we should take: Accidents occur as well as loss of jobs, expensive moves to another city, severe illnesses and even divorces. All affect the present and future financial planning for the family. There are however some fundamentals that should not be overlooked.
1. Saving for college.
If you haven’t heard of the 529 college savings plans, I strongly recommend a visit to an excellent site that will allow you to compare before deciding:
A 529 is: A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996. It offers tax-free earnings until you decide to withdraw the funds; if they are destined to pay for college costs, they are tax free (Federal). Check your state at the same site to determine what kind of tax treatment you’ll get at that level.
How to do it? Set aside a monthly amount that will automatically be deducted from your paycheck and be deposited in the fund.
2. Spending irrationally
The excitement of a new baby may lead you to buy the most expensive toys, clothing, cribs, and/or stroller. This impulse has a lot to do with the famous “do as the Joneses.” Your baby will be perfectly at ease in Wal-Mart merchandise and you’ll save a bundle. Never lose sight of the big picture: To convert your children into successful and responsible citizens. Teach them how to save money for a rainy day and how to resist the latest fads. They don’t need the most expensive tennis shoes, or the latest electronic gadget. Instill frugality without falling into extremes. A used college book is just as good as a brand new one.
3. Have sufficient life insurance
Life insurance’s only purpose is to provide sufficient income to the surviving family in case something happens to you. Buy term insurance as you will have better ways to save than a whole life insurance which purports to accumulate a lump sum paid after 20 or more years. Figure out how much will be needed in accordance with your yearly income. For example, if you earn $100,000 a year, you should buy at least $500,000 term life. The surviving spouse will thus have a 5-year span during which they’ll have to find another source of income. Buy level term insurance as the very accessible premiums (for young people) won’t change for several years.
4. Keep your health insurance updated
Make every possible effort to keep your health insurance in force and make sure you add family members as they arrive. Most employers offer a group health insurance which can only be updated once a year. Check every provision and every option. It may be cheaper to add the kids to Mom’s insurance instead of Dad’s. Don’t forget to include dental and vision if available. Remember that it is better to have insurance and not need it than not to have insurance and need it. An illness or accident can destroy your life if you are not protected.
5. Save, save, save
Saving money is no longer what grandma used to do by filling the empty jar in the kitchen with dollar bills and coins. Saving money now means being financially savvy, i.e. knowing which instruments will give me the best returns. We now have IRA’s, mutual funds, index funds, CD’s, bonds, annuities, etc.. As we mentioned in another article “Investment Tips for Young Couples”, you cannot grow your little or big stash without investing mostly in stocks. Many employers will match your IRA contribution but you decide how to allocate the funds. Choose wisely and you should reap the rewards when the time comes to pay for college or for the wedding of your beloved daughter. Believe me when I say that these days will arrive before you know it.
About The Author: Jacques Sprenger is a high school teacher, grandfather, and freelancer for the last 8 years. He has written extensively for Personal Finance Blogs and for his own pleasure on various themes such as education, Mexican-American culture and politics. His European roots give him a unique perspective on the relationship between Old and New World.
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These are some very good tips. My family is utilizing auctions to buy many appliances etc. We are getting some great buys and saving quite a bit on many items. I got a tip from a site like this and thought I would pass it along. We bought a book for about four bucks from Amazon. The author is Oliver Phipps. Great instruction guide if you are unfamiliar with auctions. We bought a nearly new fridge for 1/4 of the new price. Works like a champ and can’t tell it’s not new. Keep up the good work!
Many parents are now hesitant to open a 529 plan because of the stock market turmoil. There are alternative college savings plans that offer a guaranteed payment regardless of the interest rate fluctuations – such as the one offered by Gerber Life
http://www.gerberlife.com/gl/view/guide_products/esp/index.jsp
One other thing I’d like to add–”Don’t sweat it”.
When we had our child (and we have only one), I was scared to death about how I was going to afford everything. Save where you can, but don’t stress out.
The Lord would not have blessed you with a child if he did not think you could afford it.
Plus, it all works out in the end.
Thanks for sharing such a great information with us….I like it…. and i must agree with thisThe lump sum annuity dilemma has it’s own roots in the uncertainty of our life . Once in retirement you may have little opportunity to work for money, should one run out of money before death.Means people closer to retirement are more likely to annuitize than seek a lump sum payment as compare compared to young people.
Thanks for sharing the 529 savings site. I’m looking for more information on this plan and that site seems to have a bunch of good info!