Well, here’s the fun stuff about becoming parents. There are plenty of things you can do to set your kid up for financial success! YAY! This is the stuff that excites me to my bones. Of course, finance isn’t for everyone. That’s why I wanted to share a few actionable tips for people who love a set-it-and-forget-it type of financial life. By doing these few finance moves early on, you are making your family’s life a lot easier. Even before they can even babble, you can already do so much! Here is a list of finance moves we are going to make for our newborn in the first few months after birth.
Set Up your Baby for Financial Success with these easy finance moves
- Add baby as an authorized user to your credit card. You can do this once they are born, which allows them to start building credit. Of course, you want to make sure you yourself are paying back those credit cards every month. We don’t want you to ruin their credit scores by racking up a terrible history. But as long as you do, this is a sure-fire way to give them a good score! If you have trouble paying off your credit card debts, you can always try The Credit Pros. They will help identify the most damaging and most helpful credit items, as well as provide advice and educationalools.
- Start a 529 plan. You can open this through a brokerage account such as Fidelity or Vanguard. A 529 plan allows you to save up for educational expenses for your child. It is a tax-advantaged savings account. As long as money stays in the account, there are no taxes on earnings. As long as the money is used to pay for qualifying educational expenses, there are no federal taxes. And most of the time, there are no state taxes either! If your child doesn’t end up going needing educational expenses, you can rename the beneficiary to someone else. A grandchild, for example. Or you can transfer funds to an IRA.
- Add them to the HSA plan. Having a child is a qualifying life event that allows you to add them to your HSA plan mid-year. Make sure to claim them as a dependent under the person who owns the HSA plan.
- Claim child as a dependent with your employer.
- Take care of health insurance, life insurance, and disability insurance. Adding your newborn to existing insurance plans is a must!
- Create a budget category for your new family member. We budget every dollar, and now that we have an additional person, we need to financially account for them. We added a specific spending bucket for our baby’s additional monthly expenses. We’ve actually tried to not increase our spending by much even though we have a new family member. Check out the list of baby stuff we did not buy if you also want to limit spending. As for our budgeting tool, we have used YNAB for years and I recommend it to everyone. It is a tool that gave us the lifestyle we wanted. You can try it for free for 34 days using my referral link here. Personally, we find so much value in YNAB that we pay a yearly subscription.
- Add them to your living trust and will. I wrote our living trust on my own with Legal Zoom. By doing so, I saved thousands of dollars on lawyer fees. It was super easy to do on my own, too. All we had to pay for were notary fees. I talked a lot about the importance of living trusts in this post. The living trust is crucial in avoiding state interferences that usually occur prior to the will being carried out.
- Add child as beneficiary to accounts. Do this as a safety measure to the living trust and will.
- Take advantage of tax breaks. Did you know that there is the Child and Dependent Care Tax Credit? It allows you to get 20-35% of tax credit for up to $3000 (one dependent) or $6000 (two or more qualifying dependents). The percent depends on your adjusted gross income. There is also the option of opening an FSA account with your employer and funding up to $5000 tax-free in an FSA account. This money can be used to pay for pre-K programs such as nursery school or pre-school. Higher income earners may benefit more from an FSA account than the Child and Dependent Care Tax Credit (you can’t use both!). However, FSA money must be spent within the same year. So use it or lose it! Plus, check to see if you qualify for the Child Tax Credit (CTC) which gives up to $2k per child, or the Earned Income Tax Credit.
- Sign them up for a frequent flyer account with an airline so they can accumulate miles for award flights simultaneously. Most of the time, we travel hack our trips so that we use points to book flights and hotels instead of our hard-earned dollars. We actually did this for our upcoming trip to Japan in October. We paid for our hotels 100% with points (that means we spent $0 for 11 days of stay in Japan!), and 50% of our flights using a credit card sign up bonus cash redemption with this credit card (this referral link of ours will give you an additional $200 cash back if you sign up by 6/7/23). You can read how we travel hacked our Japan trip in this post. But for the times such as this when we can’t cover the flights solely through credit card rewards, it is very important to collect the frequent flyer miles. I think it will be harder to travel hack for a family of three than it was when it was just us two. So I would love for them to earn the points so they can accrue enough to cover their future trips.
Of course, this probably isn’t everything, but it’s a good place to start when you don’t want to do much work. If there are other intricacies that I come across, I will try to let the community know. I would love to know any hacks you may have too, so do leave a comment below!
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