written by: Cassandra Brashier
“Being a parent and raising a family is easy” - said No Parent Ever. Let’s try to break it down in some bite size pieces. Here are some things to consider financially while you’re raising those little darlings…
Life Insurance: There are as many opinions about life insurance as there are Taxis in New York. This topic for most people is right up there with having a root canal. However, death is never timely. Try to look at life insurance as an act of love rather than a burden to bear. If you have a family and you provide for that family, either with a paycheck or by running the house (or both), then you provide an economic value and one that should be protected. What would happen if your paycheck stopped coming into the bank account every month? Let alone you not being there for the day to day tasks. Today there are so many different kinds of insurance at many different price points. The amount appropriate will largely depend on your specific situation. If you don’t have any now – anything you get will be better than nothing. For example having 1X your income would keep the family going for about a year. Although, it is not uncommon to have 10 years or more factored in as well as things such as college costs, funeral expenses, etc. The right amount can’t be determined by a ‘strict rule of thumb’.
Funding College: There are many questions people have about how to save for their children’s future education costs. One of the most common ways is to start a 529 plan. This type of account allows you to put money in and others can contribute as well. So when Grandma Charity says she wants to help fund Wisdom’s college fund, she can do that. A 529 plan can now also be used for elementary and high school. There are other strategies available like Coverdell ESA’s and if set up a certain way, life insurance policies can also be used as a strategy to fund college. Which one is right for you depends on your goals, income and situation.
UTMA & UGMA Accounts: Don’t know that your kids will be college bound? The sky’s the limit with these accounts. It can be utilized for school or to fund that Tech start-up they’ve been dreaming about and any number of other options. The pros is that it’s more flexible then the 529 plan and there are no contribution limits. The cons are that it is taxed along the way and upon the child reaching the age of majority, the funds transfer to them and the adult no longer has any say or control over the money. But thankfully most 18 year old’s are responsible money managers, right?!
Having a Will or Trust: Once kids are in the picture you have a lot of decisions to make. Daily. This is an important one though: What would you want to happen to your kids if both parents weren’t there to raise them? If you don’t have a Will or Trust in place then the state is going to step in and make the decision who will raise your kids. So not having a Will doesn’t mean you don’t have a plan, it’s just going to be the State’s plan. Do your kids a favor and put one in place and be sure to name a guardian who would be responsible for the assets on their behalf.
Kids Life Insurance: With this topic most people assume the worst. When in reality this could provide some long-term benefits to your child. Most people will become uninsurable at some point in their life. For many it will be later in life but for some of us things happen or we are diagnosed with something before adulthood and that could prevent us from ever qualifying for life insurance (or make the cost extremely high). This is one of the main reasons to at last have something for a child. Either way having it and not needing is every parents hope.
Beneficiaries: As parents we work hard to build up our assets and have life insurance for protection and it’s usually intended to be passed down to our children. It can seem logical to have them listed then as our beneficiaries but if they are minors it’s not recommended. A minor cannot take control of assets so they wouldn’t be able to access the funds as easily (a guardian will have to be appointed if there isn’t one already) in the event of a tragedy. If the child/children are special needs and have assistance this can also affect the funds they receive and could impact if they continue to qualify. The best way to pass your assets along will depend on your situation.
If you’re still reading and haven’t poked your eyes out, congratulations! (no offense to any pirates in the audience)
Allowance: If kids can understand at an early age they have to do something to have money, they will have learned a valuable life lesson. Help them start good money habits by saving a portion of everything and watching that accumulate. Set financial goals with them for things they want to buy. These can all be great tools to teaching kids good financial habits for their life!
There isn’t a ones size fits all and so much of raising kids and finances is sensitive to each family. To answer questions about your unique situation talk to your tax professional, attorney and financial advisor. A little planning can go a long way and may even impact multi generations to come.
Cassandra Brashier is a wife, mother of 3 and has been a Financial Advisor for 15 years. For questions go to www.momstalkmoney.com
Securities and advisory services offered through Harbour Investments, Inc.