Making Ends Meet: Managing growing debt with a growing family
LOUISVILLE, Ky. (WAVE) - Doctor’s offices say they are preparing for a baby boom in 2021 because of COVID-19.
Regardless of when your family may grow, you must also realize that your debt will grow with your growing family. Everything changes, including how you manage your money.
”The U.S. government says from (ages) 0-18, it takes $250,000 to raise a child,” said Mark Lampkin, CEO and President of Lamkin Wealth Management. “That doesn’t even count college.”
You may find your finances in flux for years to come as you add diapers, daycare, rising food and utility costs and unexpected expenses to an already-stretched budget. It’s virtually impossible to calculate exactly what you will need.
“Think ‘wants’ versus ‘needs’ because so many times we waste money on wants,” Lamkin said. “The very first thing you do, is you’re going to check for that health insurance for that child.”
You generally have 30 days from the day the child is born. This is critical. Medical expenses are the No. 1 reason for bankruptcy in the United States.
”The second thing you’re going to do at work is see what kind of life and disability insurance that you have,” Lamkin said. “You’ve got to think about this child and if you get hurt, your disability insurance at work will cover as much as 60 percent of your pay.”
Also, investigate a Health Savings Account. You decide how much money is set aside in that account and your money will grow securely in a tax-free FDIC-insured savings account. You can save up to $7,200 a year for a family, and you control how the money is spent.
”It’s pretax, and you can use that money for doctor’s visits, prescriptions, eyeglasses, braces, whatever for that child,” Lamkin said. The expenses will add up, but once you get a handle on it all, it’s time to save for college. A 529 education savings plan is a perfect way to start, Lamkin said. The earlier you start saving, the better.
”A 529 is designated to be specifically for education or expenses tied to education such as transportation, books, housing, tuition,” Lamkin said. A savings account in your child’s name foregoes compounding interest and numerous tax benefits, and at age 18 the account belongs to the child and can be spent on anything that child may want to spend it on.
“They may take it and buy a car,” Lamkin said. “They may take it and go to Vegas. You have no control. With a 529 plan, you have complete control, and you can really change lives.”
One thing you should also know about a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need. You can make ends meet regardless of what time period in life you may be in, but preparation and budget planning make it easier.
“You don’t get wealthy all at once,” Lamkin said. “It’s a month at a time.”
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