Having a child is one of the most exciting milestones couples can experience. However, new parents may also have to deal with new financial obligations, such as childcare and additional health insurance. Adequate preparation and planning can help you raise your child comfortably while staying on track to reach your long-term goals. This article will dive into four financial planning tips new parents can use for economic success in 2024.
Increase your Emergency Fund
Emergency funds help you cover the costs of unexpected events, such as job losses, car accidents, or hospital stays. They also allow you to pay for daily expenses if these situations temporarily put you out of work.
Increasing your emergency fund is crucial once you have a child for a few reasons—first, your living expenses increase. Emergency funds should generally have three to six months of expenses saved, so you may need to up your savings to stay within this threshold. However, having more people in your household can also mean a higher chance of an emergency or a need to take time off work. Therefore, new parents may aim for the upper end of that range or even push beyond six months of expenses.
Consider Getting Life Insurance
Life insurance for married couples can offer added peace of mind once you have your first child. It ensures that if you pass away early, your surviving spouse can replace your income and comfortably provide for your child. The death benefit payout can also allow them to save for future goals like college and help pay for childcare if needed.
Another consideration is getting child life insurance to prepare for the worst. This type of insurance can help provide extra peace of mind knowing that if your child were to pass away tragically, you would not have to worry about finances while grieving. Furthermore, your child can convert it to a traditional policy once they reach 25. This will allow them to maintain low-cost life insurance coverage in adulthood.
Understand and Plan for Childcare Costs
Childcare is among the most significant expenses for parents. So, it’s wise to understand and plan for these costs as soon as possible. Planning financially can help parents compare the types of childcare available and find the most cost-effective options that suit their needs. In addition to costs like daycare or nannies, you should also plan for expenses like:
- · Basic needs: Food, diapers, wipes, and clothing
- · Healthcare: Checkups, vaccinations, medication, and treatments for childhood illnesses
- · Equipment and supplies:Baby car seats, strollers, toys, and a crib
Explore Tax Credits
- Unlike deductions, tax credits don’t reduce your taxable income. They directly reduce your taxes owed and can even lead to a larger tax refund. Several tax credits exist to offer financial relief to parents. The Child Tax Credit, for instance, offers up to a certain amount in tax credits per child if you qualify. Here are some other credits parents may be able to use to potentially reduce their tax burden:
- · Child and Dependent Care Credit: Parents who paid for the care of qualifying children while working or looking for work may be eligible for this credit.
- · Earned Income Tax Credit (EITC): The EITC helps people under a particular income threshold get additional tax relief and increases if they have children.
- · Adoption Credit: If you adopted your child, the Adoption Credit may offer tax relief to help cover adoption fees, attorney fees, court costs, and similar qualifying expenses.
Qualifying for some of these could reduce your yearly taxes, providing you with more funds to care for your child. Consult with a tax professional to see which credits you may qualify for.
Secure your Family’s Financial Future
Parenthood is one of life’s greatest joys and one of the largest financial undertakings.New parents should increase their emergency funds as soon as possible, potentially saving more than six months of expenses, while considering life insurance to help protect themselves and their children. Additionally, they should plan for childcare costs and consider tax credits for financial relief. By following these steps, you can potentially reduce financial strain and gain added peace of mind as a parent.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
