Thanks to Responsival for our partnership on this post about the financial future for families.
If I could pick one word to describe our family’s financial life, it would be, “Surprise!” Every now and then we get on top of my budget, but then emergency strikes and things fall apart. And once we have kids, the term “financial future” enters our discussions regularly. Here are some difficulties we’ve experienced:
- When my credit card was stolen and charged with thousands in “date night” expenses.
- When I got gum surgery with no info on costs, and then handed a $1500 bill while still medicated.
- When the girls were babies, our hot water heater blew up in the middle of a very cold winter, directly followed by our clothes dryer breaking.
And that’s just the stuff that happened to me and our home. Imagine if the kids were in a crisis!
My girls. Worth. Everything.
The bottom line is that life is full of “I never saw it coming” expenses, incidents, and tragedies especially when you have kids. Your only insurance against them is expecting that anything can happen. Here are three tips that will be help you to plan for your child’s financial future.
1. Providing for Your Child’s Financial Future
From experience I know that time flies when you’re raising a famil! A custodial account can help your children in the future. When your kids are still little, parent’s need guidance about finances to ensure their kids have what they need, like a custodial account. This is a type of custodial account for underage children that allows you to make investements for them. UGMA stands for Uniform Gifts to Minors Act. In other words it’s a great way to
Children under the age of 18 or 21 (depending on your starte) cannot make investments on their own. That’s where UGMA steps in. Unlike a trust fund, which requires a lawyer to set up, you may be able to set up your own UGMA in your state. UGMA assets belong to your child and he or she can access them at age 18 or 21, depending on your state.
2. Safeguard Future Finances with an Emergency Fund
I know it sounds so basic, but it is so critical to set up an emergency fund. The real question is, How much does the fund need to have? The answer is: always more than zero. Once you get hit with a larage expense, it could go all the way down to zero so you need to be constantly refilling it. Wise parents will make this is a percentage of their budget.
While you may be tempted to do all kind of fancy things to make interest on this money, the most important consideration is that you can access the funds immediately. A savings account is generally the best option. It’s also wise to make this account separate from others so that you don’t touch it. You can even take the advice of Ramit Sethi, host of “How to Get Rich,” and keep the funds in another bank to resist dipping in.
3. Get the Right Insurance for Your Family’s Needs
Life insurance, car insurance, health insurance, long-term care, disability, house or renter’s insurance and, if you can, pet insurance – really all the things. For parents, life insurance may be the most critical of these. When you (or your spouse, if applicable) die, you designate who gets the money, aka the beneficiary. Usually this is your child. Of course, if your child requires guardianship when they become an adult, you’ll need to factor that into your decision as well. Depending on your age, you may even be able to find life insurance that does not require a medical exam.
Remember that when you pass, your loved ones will need finances for funeral and burial expenses, as well as whatever you contribute to running the household finanancially. Seek out a good plan that covers your family’s needs, current and future.
These are just some of the financial tools that can help prepare your kids for life and safeguard you from future disaster.. There will be abundant days and days when, well, you just really need more income. But setting a strong foundation when your kids are little – or even just now, if they’re older – helps you go a long way! It doesn’t matter what age your children are, today is the day to prepare for the future.
