“As a parent, you may have more financial concerns than anyone else, because you’re responsible for your children’s needs as well as your own.”
Because you’re responsible for your children’s needs as well as your own, you may worry about making sound financial decisions. By acting on some of the tips below, however, you may feel more confident when it comes to taking charge of your family’s financial future.
Make Sure You Have Adequate Life Insurance
Life insurance is a necessity for anyone with dependent children. You’ll have peace of mind knowing that your children’s financial future will be secure. How much life insurance you need depends on the number and ages of your children, your income level, debt level, and the value of your assets. A good guideline is to buy coverage at six to eight times your annual salary. If you’re interested in replacing lost income or covering your debts, you can choose term life insurance, which is often the most cost-effective form of life insurance. Or, you could purchase cash value life insurance, which can help you save for retirement or your child’s education and also provide a death benefit for your survivors.
You’ll need to choose a beneficiary of your life insurance policy carefully. Naming your children as beneficiaries may create problems if they’re minors. Insurers generally won’t make settlements directly to minors. The probate court handling your estate will require that a guardian be appointed to manage the insurance proceeds and may also require that a trust be set up to receive the proceeds. Talk to your insurance agent and financial advisor to determine your best option.
Buy disability insurance
Disability insurance is critical for a parent. If you’re the sole breadwinner and an illness or injury forces you to stop working, your family may be financially crippled. Even a temporary loss of income due to an auto accident, a fall, or a medical problem can severely affect your family.
Your health insurance may cover your medical bills but won’t make up for your lost income. A disability policy aims to replace some part of your income–usually 50 to 70 percent–when you can’t work. You may already have short- or long-term disability coverage through your employer. If you don’t, look into buying it on your own. It can be expensive, but the protection it offers to your family is invaluable.
Update your estate plan
Having an estate plan and updating it periodically can ensure that your wishes for the future are followed. Among other things, an estate plan can provide financial security for your family, ensure that your property is preserved and passed on to your beneficiaries, and avoid disputes among family members. Even if you don’t have a significant financial estate, you should still have a will that names your beneficiaries and specifies guardians for your children. If your children are minors, you may also want to establish a trust to protect their interests after your death.
Save money on your taxes
Filing as a single or married and separate taxpayer when you actually qualify for head of household status is an expensive mistake you should avoid making. The head of household filing status carries lower tax rates than either the single filing status or the married and separate filing status. This allows you to take advantage of a more generous tax bracket and the larger standard deduction. Other tax rules are also more favorable to you if you can file as head of household.
If you have custody of your children, you may also be able to take the child dependency exemption for each of them, unless you have otherwise agreed to let your child’s noncustodial parent claim it instead. It’s a valuable tax deduction and a necessary prerequisite if you intend to claim other child-related credits that can also help reduce your tax burden, including the child and dependent care credit and the education tax credits (Hope Scholarship credit and Lifetime Learning credit).
Reorganize your finances
Whether you are married, divorced, widowed, or single, you should find an opportunity to review and organize your finances. Good planning can help you avoid financial problems that might otherwise create problems for your family.
- Get a copy of your credit record and make certain it’s clean
- Retitle the ownership of all your assets in your name if they were previously held jointly and you are no longer married
- Update your beneficiary designations on life insurance policies, retirement accounts, etc.
- Contribute as much as possible to your 401(k) and IRA accounts
- Set aside three to six months worth of living expenses in a savings or money market account for emergency use
Take advantage of alternative work schedules
Balancing a career and a family can be especially difficult when you’re a parent. Find out if your employer offers (or would be willing to offer) alternative work schedules such as flextime and telecommuting. Both options can help you save money on day-care costs and enable you to spend more time with your children. Flextime schedules allow you to work during hours other than the traditional nine-to-five. Your employer usually determines the level of flexibility, but many employers will allow you to set a schedule that fits your particular needs. For example, you might be able to arrive at the office at eight when your children leave for school, and work until three when it’s time to meet them at the bus stop. Telecommuting–either part-time, or more rarely, full-time–allows you to work from home and keep in touch with the office via phone, fax, or computer. In general, you set your own schedule. As long as you work a certain number of hours and get your work done, you can do it whenever you like–a big benefit if your family’s schedule is complicated.
If you have any questions about life insurance, disability insurance, health insurance, or any other type of insurance, please contact our office for assistance.
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