As a new parent, you may feel both excited and overwhelmed. It's natural to worry about your newborn's well-being and future. However, through financial planning, you can make informed decisions about your family's finances. It's never too early to start saving for the future, so let's take a look at some financial tips for new parents.
Plan for College
According to Business Insider, for the 2021 to 2022 academic year, the average cost for a four-year, in-state college tuition was $10,740 per year, with out-of-state tuition running a breathtaking $27,560 yearly. This means that new parents' financial planning must include a college fund.
The sooner you plan for your child's college, the more prepared you'll be. Even if you only have $200 a month to put into savings, this money can grow over the years. In fact, without interest and a monthly increase, as your salary grows through the years, your $200 a month would be $43,200 at the end of 18 years.
Plan for Retirement
Although retirement is even further away than your child's college years, it's time to start planning and saving so you can enjoy your Golden Years. While you may receive Social Security payments after retirement, more is needed to live how you want. Many retirement plans offer tax savings, and you want to get as close as possible to the maximum amount each year for tax purposes.
Increase Your Emergency Fund
With a new child, you want to ensure your emergency fund is robust. It needs to be ready to include the additional costs of a child if anything happens to your source of income or you are faced with a significant, unexpected expense. A healthy emergency fund should be able to cover all of your expenses for four to six months. The good news is that your emergency fund doesn't need to sit in a low-interest savings account. You can diversify with a money market account, certificate of deposit, and other accounts that offer higher interest rates with lower risks.
Explore All Available Tax Breaks
Depending on your income, you'll enjoy a wealth of tax breaks and credits as a parent that you didn't have before. Your new child will need daycare services once both parents return to work, which can be costly. The child and dependent care credit (CDCC) allows you to write off 20 to 35 percent of your child care costs, up to $3,000, until your child reaches the age of 13. A second child allows you to claim childcare costs up to $6,000.
The other major tax break for new parents is the earned income tax credit (EITC). However, there are limits on how much money you can make and still qualify for the credit. This is a refundable credit, so even if you don't owe taxes, you'll get the EITC back as a refund. As part of financial planning for new parents, you should work closely with your tax professional to ensure you get all the tax breaks you qualify for as a new parent.
As a new parent, financial planning is crucial for securing your family's future. At Caldwell Trust, our team works closely with you to make smart decisions that benefit your family in the long run. Contact us today to learn more.
