Life Planning for Parents: 4 Things Every Parent Needs to Plan For
The transition from single life to parenthood comes with many new responsibilities. No longer single and worry-free, you’re now in charge of keeping a helpless infant fed, clothed, and loved.
Becoming a parent also marks the first time you have to think seriously about the future. How can you guarantee your child’s well-being as they grow from a baby into an adult with a family of their own? Protecting your child’s future starts with planning ahead. These are the four most important things to consider as you begin life as a parent.
Prepare for the Worst-Case Scenario
The first thing every parent needs to plan for is also the hardest to think about: How will you care for your children if something happens to you? The death of a parent is an enormous emotional hardship, but it doesn’t have to be a financial one.
Life insurance protects families when a parent dies. With the payout from a life insurance policy, your family can replace lost income or pay for childcare after a parent’s death.
Most parents opt for term life insurance, which expires after a set number of years — usually after your children are grown and able to support themselves. Rates for term life insurance vary based on coverage and term length, but in general, term policies are much cheaper than whole life insurance. Don’t know how much coverage you need or how long you need it? Use an online calculator to pick the right policy and estimate your rate.
You also need to plan for how that money is handled. Parents need a will that names a conservator to manage a minor child’s assets until the age of majority. If your will doesn’t name a conservator, the courts appoint one — and it may not be the person you would choose. Parents may select the same person to serve as guardian and conservator or choose a different person for each role. Planning ahead allows you to make that choice.
Budget for Childcare
Now that the difficult conversations are out of the way, let’s talk about childcare: Childcare costs range from under $5,000 per year to over $15,000 depending on where you live. (Find the average cost of childcare in your state by clicking here.)
Many couples elect a stay-at-home-parent to save on childcare costs, but comparing take-home pay to daycare costs isn’t an apples-to-apples comparison. When one parent leaves the workforce, you lose not only the monthly paychecks but also retirement contributions and future earning potential. Consider all the costs before deciding to skip daycare, and if you do stay home, make up for lost earnings by adjusting your budget.
Start a College Fund
No parent wants their child’s early adulthood held back by college debt. Starting a 529 college savings plan while kids are young is the best way to save for this major expense.
529 plans invest pre-tax funds that grow alongside the market. When your children are college-aged, you can withdraw the funds for educational purposes tax-free. You can contribute to your child’s 529 plan and ask friends and family to contribute in lieu of gifts.
However, keep in mind that saving for college shouldn’t come before your retirement fund. There are other options to pay for college, but if you don’t save for retirement, you’ll have no choice but to lean on your children for financial support.
Invest in Your Retirement
Saving for retirement benefits you and your children. With a nest egg large enough to pay for living expenses and long-term care, your adult children don’t have to worry about supporting you while trying to start a family of their own.
Investing in a 401(k) with an employer match is the best way to save for retirement. Employees who max out their 401(k) or don’t have one can invest in a traditional IRA or Roth IRA. This resource explains more about your savings options and how much to save for retirement.
The birth of your first child marks the beginning of a new stage of life. Not only do the day-to-day things change, but your financial life also starts to look a lot different. With smart budgeting and financial planning, you can guarantee a bright future for your whole family.
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