FAMILY FINANCES INTRODUCTION
A new baby not only alters your financial
status, but also your financial
responsibilities. You now have to think of
the long-term financial stability of your
family. Saving for your child’s college
education, buying life insurance, and
establishing a will are extremely important.
As well, your child will learn how to manage
money by watching what you do. You will be
able to set a good example by developing
good financial planning early in your
child’s life.
The following sections provide a brief
overview of the pertinent financial issues
facing young families.
INSURANCE
A new baby should prompt
you to consider insurance if you don’t
already have it, and reevaluate your
policies if you already have some.
The main types of
insurance that are essential once you have
children are:
-
Medical Insurance
– You will need to add your child onto
your current medical insurance policy.
Ask for rules and additional costs from
your insurance administrator. If you do
not currently have medical insurance,
there are many state agencies that can
help you find inexpensive coverage for
your child.
-
Life insurance – A
life insurance policy that will pay for
family expenses if you die is not only
important, but will give you real peace
of mind. The two types of life insurance
are term and whole life insurance. Term
insurance works like an auto insurance
policy. Your family will only receive
money if you die. This is the most
common type of life insurance for young
families. Whole life insurance gives you
both an insurance policy and an
investment account that you may be able
to cash out upon retirement.
-
Disability insurance
– Because it is more likely that you
will become disabled during your working
years than you are to die, disability
insurance is very important. This type
of policy insures your ability to work.
It is common to insure yourself for
2/3rds of your annual income if you
should become disabled.
COLLEGE SAVINGS
It may be overwhelming to
think of the costs involved with sending
your child to college. Even though, you may
have 18 years before it happens, early
saving and good planning are key to being
able to provide the funds for your child’s
education. There are many helpful ways to
start saving now including:
-
IRA and Roth IRA
Accounts – Investment accounts
that allow you to save money while
paying less income tax.
-
529 College
Savings Plans – A savings plan
that is specifically for the cost of
higher education. You can set aside
money that can grow tax-free.
-
Prepaid Tuition
– A savings plan that lets you pay for
the costs of future college tuition at
today’s prices. State colleges and
universities often administer these
plans.
FLEXIBLE SPENDING ACCOUNTS
Flexible Spending
Account (FSA) is a benefit that is provided
by your employer that lets you pay for
medical expenses, as well as dependent and
childcare, on a pre-tax basis.
An FSA saves you money by
reducing the amount of income taxes that you
will pay each year. You will be able to
choose a certain amount of money that is
taken out of your paycheck to be placed in
the account. This amount is taken out before
your federal, state, and social security
taxes are calculated. This decreases your
taxable income and increases your spendable
income.
Each year, your employer
will give you the opportunity to start a FSA
or change the amount you contribute to the
account. When you incur costs that are
covered by the account, you will need to
provide your employer plan’s administrator
with bills and receipts. The administrator
will reimburse you the costs from your
account.
There are rules to what is
and isn’t covered by an FSA. Some expenses
that are covered include:
-
Fees paid to doctors,
chiropractors, dentists, psychologists,
and opticians
-
Prescription glasses
-
Acupuncture
-
Alcohol or drug
dependency treatment
-
Birth control
-
Dentures, crutches,
wheelchairs
-
Deductibles and
co-payments
-
Prescription drugs
-
Expenses that are not
covered:
-
Cosmetics
-
Elective plastic surgery
-
Health club memberships
-
Spa treatments
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