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Q&a: Family Financial Planning

July 11, 2017 Have a family or thinking of starting one soon? Check out some advice from our very own CEO and President, Kim Sponem on spending and saving with the family in mind. We’re expecting our first child this year and I keep hearing that we should start saving for college. In addition to all the other expenses we’re trying to plan for, do we really need to start a college savings account this early? It seems so far away. I suggest starting a college fund now, before the baby is born. Even if you save a small amount, it will help you get used to setting money aside for this long-term goal. Getting your savings automated before you are busy with your baby is also helpful. Experienced parents will tell you college quickly becomes a short-term goal. It’s not too early to talk with someone who can help you explore savings options for college. For example, you might consider a 529 college savings plan. With such a savings plan, your earnings are free from federal income tax when used for qualified college education expenses. You do not need a lot of money to start a 529, and there are no federal gift taxes on contributions up to a set amount. You can find 529 plan specifics online. Your tax consultant can give you specific tax implications. Another tax-deferred option is a Coverdell Education Savings Account (ESA) which has a lower annual contribution limit but can also be used for elementary and high school expenses. You mentioned other expenses. I also recommend opening a few other savings accounts before the baby is born. You can name these accounts to give you a chance to start putting money toward “daycare” or other expenses that will come along as your family grows. A good idea to grow your savings is to set up automatic deposits to these accounts each time you are paid. It makes saving regular and easy. But this is not a set-it-up-and-forget-it scenario. Successful savers increase the amount of regular deposits yearly. Just pick a month and increase your deposit every year so your savings are more likely to keep up with future needs. Actually, these are good savings fundamentals for anyone before a life change. Multiple savings accounts for different purposes and regular contributions to them help anyone feel more prepared for the coming change and more confident in the ability to withstand unforeseen expenses. And when you set these accounts up, fund them and experience the impact, you will create a true savings story you can share to help your child with her or his own money. What you do as parents becomes an example, and you’ll be setting a good one with these savings habits. We’re about to be first-time parents, and we both have jobs. Some of our friends say they use a flexible spending account to cover childcare. Is it something we should look into? It’s good to hear you’re talking about money. Opening the money conversation can lead to savings and to avoiding financial pitfalls. A flexible spending account offered through your employer for dependent care allows you to cover childcare expenses with money taken out of your pay check pre-tax. That means you do not pay taxes on the money you put into the account. Companies typically cover the administrative expense of the plan. Besides tax savings, it also acts as a forced savings plan for childcare expenses; you can’t use the money for other expenses. You must use the money in the program year or you will lose it, so put away slightly less than you expect to spend. I encourage you to talk with your human resources department about how this benefit might work for you and your growing family. You may want to consider a flex account for medical expenses, too. Do read specifically what is covered and what is not to determine the correct amount. You might also be interested in Q: Our daughter was just born. What should we be thinking about financially? A: Your question around what to think about money-wise shows great parental wisdom. A good start is to envision what you hope she will feel in her own relationship with money in her lifetime. No one wants their kids to be fearful or ill-equipped to handle their money, but we need to envision what we do want for them if we want them to be successful. Picture your daughter responsibly handling money with comfort, contentment, enjoyment and confidence, and take actions to help her make that happen. Financial success isn’t how much money you have — it’s feeling good about what you’re doing with the money you have. It’s not every day that someone gives you hundreds, or maybe even thousands, of dollars for (seemingly) no reason. That’s what makes getting a tax return so exciting. So before that much-anticipated check arrives, stop and consider what you should do with your tax refund, as well as what you want to do. With a little planning, you may be able to actually save a little money during the holidays. Check out these tips to keep costs down without missing out on the holiday fun. Caring for your furry friends can add up! Learn how to manage the costs of owning a pet & unwanted expenses without compromising on quality for your animal. As you prepare for this new chapter of your life as a parent, make sure you are saving to cover the costs of having a baby with our financial planning checklist. Wondering how to improve your finances? Take our one-week money saving challenge and be on your way to a brighter financial future. #MoneySmartsChallenge Using less energy is good for the environment and it can help you save money on your monthly bills. Try these tips to reduce your energy use around the house. You’ve got a savings account. Good for you! But have you ever stopped to wonder if you have the right savings account? 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