New parents are often faced with a lot of new-to-them expenses, like diapers and formula. It can be overwhelming to know what the right choices are for your family’s future finances.

As a new parent, you are going to make mistakes. It is important to know what not to do so that your child does not become frustrated with you. Some of these mistakes include:

For new parents, having a child is a wonderful life transition. While feeding, changing diapers, and raising a kid requires a lot of work, there are also crucial legal and financial concerns.

This article will go over 10 financial tips for new parents. You’ll discover how to lower risk with insurance, lower the cost of medical visits and daycare, start saving for college, and safeguard your child’s financial future.

Source of the image: fizkes/istockphoto.

1. Your kid must be covered by your health insurance.

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You have 60 days to enroll the newest member of your family to your health plan after the birth of your kid or the finalization of your adoption. You would have to wait until the subsequent open enrollment to enroll your kid in health insurance if you miss the deadline.

So, to learn what documentation has to be filled out, get in touch with your employer’s benefits administrator. Additionally, if you are self-employed or don’t have a job that offers health insurance, get in touch with your current health plan or shop and evaluate choices on Healthcare.gov or your state marketplace.

Source of the image: DepositPhotos.com.

2. Life insurance is necessary.

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People who rely on you for financial assistance, including your spouse, aged parents, and your new kid, are covered by life insurance. Your dependents will get a lump sum payment known as a death benefit when you pass away. They are free to use it anyway they see fit, including a mortgage, rent, vehicle loan, child care, schooling, or burial costs.

You shouldn’t be concerned about the price of life insurance. According to studies, customers might overestimate the price of life insurance by up to three times!

According to studies, customers might overestimate the price of life insurance by up to three times!

You may be surprised to learn that you can get a cheap coverage if you’re in your 30s or 40s and in quite excellent health. For instance, a $500,000 20-year term life insurance coverage may cost less than $30 a month or $360 a year.

Take into account the answers to the following questions to determine how much life insurance you require:

  • What possessions do you have that may be sold to pay bills, such as investments, real estate, and bank savings?
  • What amount of debt do you owe?
  • How much money would your remaining family members need annually, and for how long?
  • How much do you expect your funeral to cost? (The price of a typical funeral might exceed $10,000.)

It’s important to keep in mind that if you have a kid with special needs, you could want a permanent life insurance policy that will protect you regardless of when you pass away. This is distinct from a term life insurance policy, which provides coverage for a certain time, such 10 or 20 years. You may browse and compare life insurance offers from multiple firms on a variety of websites, including QuickQuote.com.

Source of the image: DepositPhotos.com.

3. You must purchase disability insurance.

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Are you aware that your chance of dying before age 65 is higher than your chance of having a disability? Additionally, those with long-term impairments miss employment for an average of 2.5 years, which is a long time to go without pay.

Having a disability coverage is the greatest method to safeguard your income and avoid placing a burden on your family’s finances. Every breadwinner needs it since Social Security only pays if you have a complete disability and have been out of work for a year. Furthermore, you could only be eligible for worker’s compensation insurance if you have an injury at work.

Remember that even while your health insurance covers a fraction of your medical expenditures, it won’t cover your continuous living costs if you become unable to work. Your salary is partially covered by disability insurance, often between 60 and 70 percent.

Your company may provide you disability insurance. If you work for yourself or don’t have any benefits, you can browse and compare coverage at Metlife.com or with the help of a broker for disability insurance.

Halfpoint / istockphoto is the source of the image.

4. You must have a sizable emergency reserve.

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Unexpected financial hardships like automobile trouble or job loss are a fact of life. To handle them without getting into debt, you must have an emergency fund.

I advise having three to six months’ worth of emergency funds in a bank account covered by the FDIC. Even if your emergency fund won’t yield much interest, that is not the objective. Always maintain a liquid emergency fund on hand. Never invest it since it can lose value just when you need it.

Always maintain a liquid emergency fund on hand. Never invest it since it can lose value just when you need it.

Add up all of your monthly bills, including rent or mortgage, utilities, insurance, food, loan payments, and transportation, to get an idea of how much emergency cash you’ll need. Then double that by the number of months you could need emergency funds.

You may need to increase your emergency cash estimate by 10% if your work is unstable or if you want to finance a significant purchase, such as a new house, automobile, or college education. Despite the fact that it can take years to save up enough cash for an emergency, make a commitment to starting off gently.

Image courtesy of Istockphoto and Rawpixel.

5. You must change the beneficiaries on your bank accounts.

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Review the beneficiaries on your accounts with banks, retirement accounts, life insurance, health savings accounts, 529 college savings plans, brokerages, and cryptocurrency exchanges if you have a life transition like a birth, death, marriage, or divorce.

In the majority of cases, parents choose their spouse as the main beneficiary and their children as the secondary beneficiary. However, you must choose a dependable guardian since young children cannot become property owners until they reach the age of majority in your state.

Another option is to create a trust, which enables you to specify how you want the financial resources for your heirs to be handled. Consult an estate lawyer for guidance on how to best safeguard your children when you pass away.

Source of the image: DepositPhotos.com.

6. You must make emergency documentation.

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You should make or update your emergency documentation whenever you become a parent. They consist of your:

  • final will
  • alive will
  • proxy for health care
  • Legal authority

Your final will explains your wishes and where your assets should go when you die. As I mentioned, it’s also critical to name a guardian for any minor children.

Additionally, make sure you and your spouse have a alive will, proxy for health care and Legal authority in place to keep your family safe in the event of a medical emergency or other hardship. Check out standard legal forms at LegalZoom.com or speak with an estate attorney who can help you create the emergency documents you and your family should have.

Photograph by Drazen Zigic.

7. You should take advantage of an FSA when one is offered.

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Some businesses provide flexible spending accounts, sometimes known as FSAs, which are tax-advantaged savings plans. Your contributions must be made via payroll deductions, and if you use them for permissible medical and child care costs, they are never subject to tax.

An FSA has a yearly spending cap since it is a “use-it-or-lose-it” plan. Every year, the account must be emptied, or just a tiny sum, like $500, may be carried over.

Source of the image: DepositPhotos.com.

8. As soon as you can, you should start an HSA.

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If you have a health plan that qualifies for an HSA, you may establish another tax-advantaged medical savings account called an HSA. Similar to an FSA, it enables you to pay for different healthcare costs before taxes, which, depending on your income tax rate, might result in a 20–30% reduction. Your HSA, unlike an FSA, has no spending restrictions, enabling money to rollover each year without incurring fees.

If you lose your job or move employment, your HSA follows you. You may keep using your HSA balance even if your health insurance becomes ineligible for the HSA. You won’t be able to contribute again, however.

An HSA is a fantastic method to save money for retirement after you reach the age of 65 since you may use it for things other than medical expenditures.

An HSA is a fantastic method to save money for retirement after you reach the age of 65 since you may use it for things other than medical expenditures. However, you shouldn’t put money in an HSA that you might need before retirement. Taking money out for non-qualified expenses means you must pay income tax on withdrawals plus a 20% penalty.

Even if you don’t itemize, HSA payments are still deductible on your tax return. Your remaining assets may often be invested in a variety of ways, such as mutual funds.

You may be able to combine an HSA with an FSA. For example, a Limited Expense FSA enables you to set money aside for certain needs like dental, preventive care, and vision bills. A DC-FSA is also available for childcare costs, including those for daycare, preschool, and after-school activities.

Source of the image: DepositPhotos.com.

9. You must maintain your retirement plan.

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Be cautious if you find yourself tempted to forgo your retirement to pay for a child’s education or other obligations. 80 percent of your savings objectives must be met by the time you are 20 years away from retirement.

So even if you can’t contribute the maximum to tax-favored plans like a 401(k) or IRA, be sure to donate as much as you can to them. Always make enough of a contribution to get the full amount of any matching money offered by your employer. If not, you’re essentially throwing away free money.

Source of the image: freemixer.

10. Make early financial preparations for college.

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Start saving as early as you can for a child’s future educational costs if you can (without endangering your retirement). Every year, the price of education climbs more quickly than inflation, and this trend shows no indications of abating.

Open a 529 college savings plan and contribute to it on a regular basis as one strategy to get ahead of college costs.

Open a 529 college savings plan and contribute to it on a regular basis as one strategy to get ahead of college costs. You can use it for any college, university, vocational school, or post-secondary institute recognized by the U.S. Department of Education. Qualified 529 expenses include reasonable room and board, tuition, books, fees, and equipment. If your plan allows it, you can also use up to $10,000 per year for public or private schools for kindergarten through 12th-grade students.

Additionally, you may ask friends and family to contribute to your child’s 529 plan as a birthday or Christmas present. An online gift registry called GiftofCollege.com may make such donations easier.

Know that your federal tax return does not deduct your 529 payments. However, if you reside in a state that levies income taxes, it can provide you a tax credit or deduction for joining an in-state 529 plan.

This article originally appeared on QuickAndDirtyTips.com and was syndicated by MediaFeed.org.

Image courtesy of iStock user XiXinXing.

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