New baby? Make a new financial strategy (Part - 1)
When baby makes three, budgets sometimes fly out the door, lost in the rush of diaper changes and middle-of-the-night feedings. We all know babies are not cheap and thinking about college tuition sends that figure significantly higher. If you haven’t adjusted your financial strategy to accommodate the needs of your future heirs, here are some key considerations to keep your long-term financial security intact:
Up the Ante on Life Insurance
Once you become a parent, it is crucial that you make adequate provisions for your child should one or both parents die. But how much insurance do you need? You’ll need to consider things like your earnings and the total amount of your household debt. It’s also a good idea to provide enough to cover the costs of college tuition for each child. If only one parent works outside the home, be sure to calculate the cost of hiring full-time childcare, should the stay-at-home parent die prematurely. Once you own a life insurance policy, be sure to update your beneficiary designations after the birth of each child.
The Price of Higher Education
One of the most common questions new parents ask their financial professionals is, “When should we start saving for college?” And the universally agreed upon answer is: when the child is born. When it comes to the skyrocketing costs of higher education, time and compound interest can definitely work in your favor. And thanks to provisions in the tax-law, there are a couple of attractive college savings options such as state offered “Section 529 plans” and “Coverdell Education Savings Accounts” that can offer significant federal and state tax advantages.
Claim Those Deductions
Diapers. Pre-school programs. School supplies. Braces. Daycare. There’s no question parents deserve a financial break. The good news is, the government offers several tax breaks for parents that are worth exploring. A common one that many people neglect to take advantage of is a Flexible Spending Account (FSA) offered by many medium to large-size employers. These employer-sponsored plans typically allow you to sock away as much as $5,000 of pre-tax money for child care expenses, reducing your adjusted taxable income. Some employers even offer a company funds match.
Frank Davidson offers investment advisory services through Pruco Securities, LLC (Pruco), doing business as Prudential Financial Planning Services (PFPS), pursuant to separate client agreement. Offering insurance and securities products and services as a registered representative of Pruco, and an agent of issuing insurance companies. 1-800-201-6690. This advertisement provided courtesy of The Prudential Insurance Company of America, Newark, NJ