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The Money Mom: Budgeting for Baby, Part II

iStock_000010972095XSmallLast week, we hit on budgeting. This week, it’s all about the future – college, yes, but also preparing for the unexpected. What does it take?

A will. When you’re a parent, you need a basic estate plan, and that means writing a will. It’s the only document that allows you to name guardians for your children, which means you’ll be able to select who will take care of them if something happens to you. If you don’t have a will, the choice may be up to the court and the rules in your state. If your financial situation is rather simple, you can make an inexpensive will on a website like LegalZoom. If things are more complicated – you have a lot of assets – you’re better off seeing an attorney. It will cost you about $1,000 for a basic estate plan, but it’s more than worth it.

Insurance. Obviously, you want to make any necessary changes to your health insurance, so your child’s care falls under your plan. If you’re married and you and your spouse are on different plans through work, compare them to see which option has the best coverage for the lowest cost for your new addition (if you don’t have health insurance, every state has a program that proves free or very low cost coverage for children. Check out insurekidsnow.gov for details). You also want to make sure you have life insurance, because you now have a family dependent on your income. If something were to happen to you, you’d want them to be taken care of. I wrote about this in detail a few weeks ago here.

College. Maybe you’re not quite ready to save for college yet, and that’s perfectly okay. You’ll get there, and your own retirement needs to come first. No, that’s not selfish – it’s practical. Not only can your kids borrow for college if they choose to go, but the best gift you can give them is not having to rely on them in your retirement years. To do that, you need to have a healthy nest egg that will get you through.

But when you’re ready to start putting away money for college, you can do it in a variety of ways. I always recommend starting with a Roth IRA, if you don’t already have one, because it will allow you to pay for your own retirement, but also college for your kids. If, when your kids are ready to start school, you think you have enough banked for yourself, you can pull some money out of the Roth to help with tuition. If you’re behind, you can leave it in and continue contributing for yourself.

Beyond that, I like 529 plans. Every state has one (or more) and they offer some tax benefits for saving for college. You can stash a little money away automatically each month, and invest it appropriately for your kids age – when they’re young, you’ll be more aggressive; as they approach high school, you’ll get more conservative because the money won’t have as long to bounce back from any market downturns. To find a plan, start with your state, which will often give you extra incentives and tax benefits. If you don’t like the plan’s investment options, or it hasn’t performed well in the past, shop around. Savingforcollege.com is the best place to do your research.

Finally, go ahead an open an account with UPromise or BabyMint. Both allow you to save money by purchasing things you already buy anyway, because they partner with retailers to deposit a percentage of your purchases into a 529 or other account.

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