Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, May 23, 1994 TAG: 9405230094
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: By MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Planning ahead for the financial demands of a child is vital. Even if your child has arrived, there's no time like right now to begin thinking about its impact on the family's finances.
The International Association for Financial Planning suggests 10 steps you can take to prepare - from the moment when you bring the baby home until long into the child's future.
If possible, plan before the baby comes.
The one commodity that will be most scarce once your baby arrives home isn't money. It's time.
So, if you start thinking about how your life will change before the baby is born, once the baby arrives you will be better prepared to handle anything that comes along. Don't put off reviewing your finances until after the baby is born. Then, the planners say, you will be too busy changing diapers to change your financial direction.
Set goals for your family.
What things are most important to you in raising your family? Do you want to take extra time off when the baby comes? What about day care? How often will you have baby -sitters? Do you want to send your child to college?
These goals are the road map from which all future financial decisions will be measured, the institute says.
Look at your cash flow.
A new baby means you will have a lot more expenses. The planners suggest looking through baby books to see how much you will be spending on diapers, formula and clothing. Call day-care centers to estimate the cost of child care in your area.
Take these numbers and add 10 percent. This will give you a cushion to help meet any unplanned expenses. In forecasting cash flow, plan for surprises.
Determine medical costs.
Review your medical insurance to understand exactly what your policy will pay for and what you'll need to pay.
Some policies will cover the entire cost, while others may require you to pay a pre-established amount first and will pick up expenses behind that cost. Some policies have co-insurance provisions that make you responsible for paying a certain percentage of the costs.
Review - or make - your will.
The planners said you should be certain that you and your spouse have current wills. Most important, you both should discuss whom you wish to be guardian for your child if something happens to you. If you don't decide this, the courts will.
Talk to people you believe would be good guardians to be sure they are willing to accept this potential responsibility. Then be sure to change your wills accordingly.
Determine whether you have enough insurance.
Make sure you have enough life insurance. If you want to have insurance on your child, consider a rider on your personal policy.
And don't overlook the need for disability insurance.
The planners said insurance should protect you against major losses, not necessarily minor ones. Consider increasing the deductibles on your property and casualty insurance to reduce those premiums. This will help fund your extra life and disability costs.
Increase - or begin - your savings.
Even if it's keeping loose change in a cookie jar, start saving a little more every month.
Look into signing up for payroll deductions through your employer or automatic deductions from your bank account into a mutual fund.
Saving a little at a time is painless, the planners say, and it will help you accumulate a substantial fund for your child's education expenses or cash reserves for emergencies.
Work through tax changes.
Once your child is born, you are entitled to a full deduction, even if the birth occurs late in the year. That means you will save a lot of money on taxes.
After your baby arrives, be sure to change your exemptions by filling out a new withholding form at work. A tax projection will help you determine how many new exemptions you may take.
You also may be able to pay for day care for your child through a pretax program through your employer.
Talk with your employer.
The personnel or benefits manager at work will have information about most of the tax and benefit items. Once you consider all your options, the manager can help you make the changes you need to make that affect your paycheck.
Consider consulting a professional.
If all of these things seem overwhelming, it may be because - like any major change in your life - a new child affects all areas of your finances.
One way to avoid mistakes or to clear up confusion is to consult with a qualified financial adviser who can guide you through the practical and emotional issues you face.
by CNB