Tips for Being Financially Responsible as a Parent

When you have children, everything changes, and one of those changes is a need for greater financial security. You may have been willing to take risks when you were on your own, maybe even couch surf with friends if a job or apartment temporarily fell through, but now that you have kids depending on you, it’s important to make sure they are protected.

Make a Will

Estate planning is not the most pleasant thing to think about, but it’s very important once you have children even if you have few assets. The reason is that in your will, you can name a guardian for your children. This is an easy and inexpensive way to make sure your wishes are carried out in this regard. Without this, even if you have talked to the friend or family member you would want to be your child’s guardian, there could be a long and costly court process to go through. If you do have assets, another aspect of your estate planning may involve putting them in a trust until your children are adults.

Get Life Insurance

In addition to making a will, it’s important to have a life insurance policy. You should purchase enough coverage to take care of your children until they are adults as well as pay for other necessary expenses, such as education. The most common type of life insurance policy people purchase is term insurance. This is good for a certain number of years. However, if you no longer need the policy before the time runs out, instead of letting it lapse, you might be able to sell it in a life or viatical settlement. Many people may not realize this is possible with a term policy, but it can be an important financial fallback for you and your family.

Have Emergency Savings

Everyone should have an emergency fund, but once you have children, this becomes more important than ever. Many people cannot cover a bill of a few hundred dollars or miss more than one or two paychecks. An emergency fund that you can access immediately can help prevent this. Even if you can only put away $100 per month, which is just $25 each week, this fund can cushion you against an emergency that could put you into a debt spiral. Eventually, you should aim to save up enough to cover several months’ worth of expenses. If you feel like this is out of your budget turn to some money saving tips to help you learn where your spending habits can afford to be tweaked so that more can be allocated towards an emergency fund each month. 

Education Savings

Some parents set up an education fund for their children. This can be a 529 plan, which offers a tax advantage as long as the money is used for educational expenses. The specifics of a 529 vary by state. However, you might want savings in a more flexible type of account in case your child does not go to college. You may want to meet with a financial planner to see if you should try to set up a trust or even an investment account on your child’s behalf. One advantage of creating some kind of fund to help your child is that doing so can mean you won’t have to draw on your retirement savings to help your kids. Parents generally want to do whatever they can for their children, but depleting your retirement can leave you financially vulnerable later in life.