Children will bring joy and love into your life, but their needs are many, and that can put you under financial strain. You must not only budget for immediate and ongoing needs, but you also have to think about planning for the future.
As soon as possible, think about ways to lessen the financial impact.
Build Up Your Savings
If you can, start building up your savings before you have your first child. Setting aside some money in a separate account can help you manage those expenses you didn’t plan on. These funds can help prevent you from falling into credit card debt.
As parents, you know that everything that happens to you potentially affects your child. If you lose your job or become injured or ill, you don’t want your children to suffer. Experts recommend you should have an emergency fund equivalent to at least six months’ salary.
Claim Tax Breaks
Some of the expenses of raising children can be recouped by claiming eligible tax deductions for childcare. You can take a deduction for each child, though the exact amount varies slightly depending on their age and changes from year to year. You may also be able to deduct an Earned Income Credit.
If you adopt, you can get nearly $15,000 back in tax credits. To be eligible, you must meet income requirements. The credit should be taken the year the adoption is finalized. Before finalization, you may be able to claim adoption expenses such as attorney fees and travel.
Open a College Savings Plan
It’s no secret that the costs of higher education have increased since you were young. Opening up a college savings plan, also known as a 529 plan, can help to defray the costs and help your child reduce or avoid student loans. The earlier you open the account, the more your child can benefit.
A 529 plan allows you to make regular deposits that earn interest on a tax-deferred basis. When it comes time to pay for college, the distributions are also tax-free if used for eligible expenses. All states offer 529 plans.
Becoming a parent is a huge responsibility, but you can reduce some of the worry and financial strain by planning ahead for the expenses you might encounter. Taking advantage of savings and tax breaks are just two of the tools available to you.
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