3 Common Questions From New Parents
1. How should I go about saving for college? Is a 529 plan my only option? While we generally do recommend 529 college savings plans for their investment options and opportunities for tax-free growth, they are not your only option.
We hear many parents asking what happens if their child gets a scholarship, or decides not to attend college? What happens to that money? Keep in mind that the money in a 529 plan can be used for educational expenses beyond tuition (books, room and board, etc.), and can be used for more than one family member. So even if your child does get a scholarship of some kind, the funds can still be used for other education-related costs that the scholarship might not cover.
However, if you're more comfortable using a traditional savings account, make sure you do not put it in your child's name. Keep it in your and/or your spouse's names only. That way, when your child turns 18, he or she can't clean it out spend a month in the Bahamas instead of using it for school.
Keep in mind, in all the years we've been in this business, we've rarely, if ever, seen a client get to the end of a college education with anything left over in a 529 plan.
2. How should I create a budget? You've all heard the stat: raising a child costs nearly $300,000 from birth through age 18. But that hardly helps with the day-to-day budgeting for babies and kiddos. It's more of a broad concept than anything that can help you right now.
As with any new client, one of the first things we'll do is have you fill out a cash flow worksheet so you can see where your money is going now. Then, we'll sit down with you and go over all of those expenses, see what might need to be adjusted, and create a budget that allows you to enjoy all aspects of that new little bundle of joy - without breaking the bank.
It will take some getting used to at first, and expenses change fast in the first few years of a child's life, so be sure to be flexible, and keep your financial planning team informed of any changes in your life or areas where you're struggling to stay on budget.
3. Once my kids are a little older, when and how should I start talking to them about money? We love getting this question, because it means the parents are engaged in educating their kids about money. Summer is a great time to start the conversation, as older kids can do certain additional chores or mow lawns to help pay for summer camps, sports activities, etc. This gives them a sense of involvement in the activity in addition to teaching them about budgets, goals and earning money.
Although allowances have their place, we usually encourage parents not to tie all household chores to money. We don't get paid to mow our own lawns or take the trash out as adults, so teaching kids that some responsibilities don't come with a financial reward can be valuable as well.
That said, an allowance can be a great way to start teaching even small children about saving, setting goals and thinking about money in a tangible way.
What questions do you have about the financial aspects of starting a family? Do you know someone who is about to have a child? Introduce us. We'd love to help.