August 1, 2012
4 Smart Family Financial Steps
Welcoming a new member into the family is a fantastic, exciting experience. But it comes with a lot of financial questions. Ever wondered how soon you should write a will? Is it too early for you to get life insurance?
Rick Rodgers, CFP®, the founder of Rodgers & Associates in Lancaster, Penn., and author of The New Three-Legged Stool: A Tax Efficient Approach to Retirement Planning, is a knowledgeable source on smart financial planning. As featured on www.swparents.com, the following tips and suggestions will allow you to keep on top of your family finances and make sure everyone is covered.
“Dying without a will leaves the decision up to the courts to determine what happens to the assets. You don’t want grandparents and siblings fighting over who should raise the child, least of all letting the court make that decision,” writes Rodgers, who notes that you need a will to distribute your possessions and name a guardian for your child. Is your child a minor? The document will also name a custodian for any assets left to the child while they are a minor. You never know what life with throw at you; a possible wrongful death settlement could make this a sizable sum.
Got your will covered? It’s time to review your insurances. “Most health insurance plans will automatically cover your new child for the first 30 days. Afterward you will need to add the child to your policy,” writes Rodgers. What happens if you miss your 30-day window? Often, you will have to wait for the next open-enrollment period. This could be anywhere from 3 to 6 months away.
Next on the insurance list would be reviewing life insurance coverage. Rodgers suggests having enough coverage to provide for either spouse if they end up being the survivor.
“A good rule of thumb is 10 years of earnings. Use your current take home pay and multiply it by 10 to determine the amount of coverage you need. Most employers will provide a multiple of salary as an automatic benefit. You can either increase this amount through your employer or buy a separate policy,” he notes.
Finally, Rodgers writes, raising children is expensive and the government provides a couple of tax benefits to help ease the burden. Don’t forget to take advantage of these at tax time. The first is an additional personal exemption of $3,650. This is a reduction of income by that amount and will save you the tax on that income. Even more valuable is the $1,000 child tax credit that you can take until the child turns 17. This is a $1,000 reduction of the tax due. Higher income families may not qualify for these tax breaks. You should check with a tax professional to see if you qualify.
A new baby is an exciting time that comes with a lot of life changes. Don’t overlook financial issues in the excitement. Make sure you have these items covered.