Financial Planning For The New Parent
Take your first steps before they take theirs.
The first few days after you bring your baby home is an exciting time that can also be a bit stressful. So can the first few weeks. Many parents also find the first few months stressful, while others are stressed over their parental commitments a while longer. It's easy to get caught up in sleepless nights, organic baby food, and reading every book you can find, but sometimes parents forget an obvious priority: teaching and helping your child to save money as they grow up.
Set up a savings account for your child and make regular deposits.
You don't have to know what you want to do with your child's savings yet. However, the first step is as simple as opening a savings account for your child. Studies show that young adults who had savings accounts as children make better financial decisions, are more prepared for financial emergencies and plan better than their peers who didn't grow up with savings accounts. So, for now, open a savings account, put a few dollars into it every paycheck and invite your child to participate by making deposits of their own when he or she is old enough. Northeast Credit Union offers savings accounts specially designed for kids.
Start saving for college now.
Most parents know they need to save for their child's college education, but few seem to realize how much college will cost. Education costs have been rising much faster than inflation, and if you've been out of school for a few years, you might be shocked by the costs. To make matters worse, and more expensive, many universities are receiving fewer public dollars, and getting a larger portion of their income from tuition, thus passing the cost on to students.
Try this: Think of college costs as a pie that's been split into thirds. The first third will be paid for by your loans and awards your child earns. You'll pay for the second third using the income you earn at the time. Only one-third needs to come from a college savings fund. It's a lot of money, but take a deep breath, because you have decades to save it, and you have a secret weapon: compound interest, which Einstein called the most powerful force in the universe.
Focus on what you can control.
Disaster sometimes strikes, and when it does, it's usually unexpected. But there's nothing you could do to prevent it. We don't like to think about life ending, but it is inevitable. Instead of panicking over it, plan for it. While you're at it, start planning for some of the less dramatic problems that might crop up. Start with life insurance, then look into other savings products and programs that are designed to protect your family.
One mistake many new parents often make is to immediately start throwing money at college savings while ignoring their overall financial picture. Start by building a nest egg that can carry you through 6 to 9 months of lean time, and then build your retirement fund. Money market accounts are a good way to build your short-term nest egg.
As for retirement, you may not have given it much thought since your initial conversation with HR. Now is the time to see what else you need. Remember, you can take a loan to pay for college, but you can't get a loan to retire. Even if you want to put college money away now, you can still get tax incentives if you contribute to your retirement at the same time.
Browse Northeast Credit Union's retirement options here or call us at 888-436-1847 if you want some help figuring out what's right for you.