-Get Term Life Insurance. There are two types of life insurance – “term” and “permanent” (or “whole.”) Term life insurance is protection that lasts a specific amount of time, typically 10 to 30 years. It is only payable upon death during that term. Permanent insurance is payable upon death, whenever it happens to occur (like, when you’re 90). Since the primary purpose of life insurance is to provide financial resources to your children in the case of your early death, it makes more sense to buy term insurance that will cover your children only until they are independent. Permanent is MUCH more expensive than term, and most people don’t need coverage for their entire life.
Buy just enough term life insurance to cover you until your youngest child is out of school.
-Get Long-Term Disability Insurance. If you’re seriously injured and out of work for months or even years, how would you take care of your family? Short-term disability can cover 3 to 6 months, but long-term disability insurance can last longer, and will pay 40-65% of your salary. Check to see if your employer offers group policies (they’re WAY cheaper than individual policies). Social Security Disability will only cover you if you can never return to the type of work you were doing before.
-Double-check your health insurance plan. Choose the best one to fit with your specific family needs. If your family is relatively healthy, choose a plan with a higher deductible to save on premiums. If you end up at the doctor’s office or ER a lot, lower deductible plans will save you money.
-Set up a trust – trusts specify what you want to leave your children if something happens to you before their 18th birthday. It can be tedious to set up, but you’ll get peace of mind knowing that they’ll be taken care of.
-Set up your will – you probably want to decide who will be the guardian of your children, and not the state.
–Check to see if your employer will match 401(k) contributions. The IRS doesn’t count the money you contribute on a yearly basis toward your income. Even though the money in a 401(k) grows tax-free and you’ll be taxed when you withdraw, it’s usually worth the tradeoff.
-Set up a Roth IRA. It’s meant for retirement, but you can withdraw from this account if you buy your first home, or have financial hardship. Plus, since it’s pre-taxed, when you withdraw, it’ll be tax-free income.
-Set up a savings account for your kids. There are several of these to choose from – a Coverdell ESA is dedicated to education savings, and has tax benefits when used for education. A 529 plan is similar, but only some states offer tax breaks for making contributions. Or you can set up a simple savings account at your bank. Make sure to set up automatic transactions to move money to the accounts on the same day each month.
-Do something on the side to earn a little extra money. Kids are expensive, and sometimes one paycheck isn’t enough to buy diapers and pay the bills. Monetize a hobby, start a paper route, babysit, walk dogs, mow lawns, become a certified lifeguard, clean houses…
-Pay off your debt. Since kids are so expensive, you want to have as few monthly payments to make as possible. Check out the Best Way To Pay Back Debt. (LINK)
-Set aside date money. Time for just the two of you is pretty limited as it is, but the chance of you going to spend alone time is greater if you set a little money aside to make it happen. It’s important not only for your relationship with each other, but for your kids to see what a healthy relationship should look like.
-Buy baby items second-hand. This doesn’t apply to car seats, but many baby items are only used for a short time so they can be purchased second-hand in like-new condition. Check craigslist or ksl.com (in Utah) for gently used baby items, and shop garage sales for baby clothes – which are usually only worn for a few months before they grow out of them.
-Set up an Emergency Fund – Unexpected emergencies can end up costing a fortune and throw off your entire budget. Set aside 3 to 6 months of your family’s typical expenses just to be safe. At the very least, $1,000 should be set aside until you can afford to put away more. (We talked about this HERE – Budgeting 101.)