New Year’s Resolution Workshop #4: Protect My Family’s Future

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new year's resolution workshopBetween Christmas and New Year’s, we’re taking a look at five common New Year’s resolutions that people often adopt for their finances, evaluate some of the traps that people fall into with regards to that resolution, and come up with some real actions that can turn a challenging New Year’s resolution into a success.

We grow up. Many of us get married. Some of us have children. And when that happens, everything changes. You realize that you’re responsible for the positive upbringing of a child, and you can’t simply wing it any more. You have to plan for the future now, because your child can’t simply make it on his or her own if you can no longer provide.

I went through this very process myself as a young adult. When I was single, I didn’t really worry about the future much at all – if I were to suddenly drop dead, it wouldn’t really have much of an impact on the rest of the world. When I got married, I occasionally thought about how my passing would affect my wife, but again, it was not something that ever seemed pressing.

When I had children, though, everything changed. As I held my children in my arms and witnessed how defenseless they were, I quickly began to realize that I needed to plan for their future – and protect them in the event of the unthinkable.

This is a resolution that many new parents make. Their heart is in the right place – they sense that they need to protect their kids – but actually taking the steps to ensure protection can be harder than it seems. Thus, like many resolutions, this one falls to the wayside along the road paved with good intentions.

Don’t let it happen. Here are some direct actions you can take to protect your family’s future right now.

Life insurance A simple term life insurance policy for yourself (and for your spouse) to cover your child-rearing years can go a long way towards ensuring the financial stability of your children during their childhood. For younger adults (such as those with young children), term policy rates are pretty inexpensive – don’t hesitate to shop around.

How much should I get? There is no set recipe to follow in terms of amount, but it’s probably good to have a policy worth at least enough to pay off all household debts plus provide at least a couple years’ worth of your income to the family.

Long term disability and care insurance Many people overlook these types of insurance, but much like life insurance, they’re very low cost for a young adult and they provide protection for your children against an unthinkable situation. Much like life insurance, shop around for both kinds of policies and know what they cover.

Your will This is often something that’s done in conjunction with one’s spouse. The major decision that most people have to make with regards to their children is who you wish to assign guardianship to in the event of both of you passing.

Don’t take this decision lightly. Spend some time considering the options available to you, and don’t be surprised if you come to an unexpected conclusion in the end. You may find that as you consider the situation more deeply, the factors of highest importance to you in choosing a guardian actually change, and that may actually change who you would choose to be a guardian for your child.

The actual process of creating a will is simple and only takes a brief session with a lawyer (I tend not to trust do-it-yourself will packages). Even if you’ve not considered the question above, call now and make an appointment with a lawyer you trust. That way, the date is set in stone and you’re sure to go through with it.

College education planning Another important element for parents to consider is their child’s college education. Do you intend to pay for all of it, just contribute a portion of the cost, or have the child pay for the cost? Different parents have different philosophies when it comes to this crucial decision, but if you decide to help, you should start as early as possible.

How? The most straightforward route – and one that has solid tax benefits, too – is to open up a 529 college savings plan for your child. 529 plans allow all interest earned to be tax free if it’s used for educational costs, and often the contributions are tax-deductible on one’s state income tax. Use Google to identify the plans available in your state. Most plans offer a customized investment vehicle that starts off aggressively when the child is young, then scales back to more conservative investments as the child grows older and approaches college age.

The big dilemma will be choosing how much to contribute. I recommend setting up an automatic contribution plan where you contribute a small, reasonable amount each month. This way, once you’ve set up the plan, you really don’t have to actively think about it too much – it just slowly builds up for your child over time.

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14 thoughts on “New Year’s Resolution Workshop #4: Protect My Family’s Future

  1. Great time of the year to sign up for insurance policies throught work. Also it’s a good time of the year to check up on all investments and all things financial. Great Post!

  2. Life Insurance – this is a big one for us. We looked into it a couple years ago, but whole idea of one of us passing away was too much for my husband to handle, so we dropped it.

    At that point, it wasn’t too bad, because either one of us would be able to move on financially without the other.

    Now, we’re expecting a baby girl in a few weeks – everything is completely different.

    Life insurance is #1 on our list.

  3. Great post.

    Emergencies can happen at any time and it sure pays off to be prepared for the future!

  4. It seems to me that long term disability insurance is very important whether a person is single, married no kids, married with kids, etc.

    My husband and I fall into the married with no kids category. If anything happened to me, the last thing I’d want my husband dealing with is the entire financial responsibility of the household. I think we’d have bigger things to think about, that are not so easily taken care of.

  5. Two things I didn’t see on your list were a revocable living trust and a living will. The trust might not be for everyone, especially young families just starting out who have no assets, but a living will is applicable to everyone. As people saw in the Terry Shivo (sp?) case, living wills are important.

  6. Great post Trent! While I have all points covered as a single parent, I just wish that I had known about the 529 College Savings Plan…I will be checking into this now.

    Question: With the grave economic downturn, I am curious to find out if you and your family have “cut-back and trimmed down” or are you taking advantage of the “great deals” out there and in doing so, sort of helping stimulate the economy…your thoughts?

    Thanks,
    Henie
    http://www.HennArtOnline.com

  7. Don’t forget to mention how important a will is for single parents, in regards to the guardian of the children.

  8. I second the call for disability insurance. I’ve seen first hand through my mother’s stroke that disabilities can be more financially devastating than death. Typically, when people die there is at least some life insurance, either held privately or through an employer. However, when a disability strikes income stops, but life needs continue on.

    Best approach is to find a strong disability plan offering to cover 60-70% of your full-time income at time of disability with a short waiting period (3-6 months). Have a strong emergency fund in place to cover this waiting period.

  9. Good call on not doing your own will. This really isn’t as daunting of a task as people make it out to be. It takes a little thought, and a little actual effort to meet with a lawyer and get things taken care of, but the peace of mind that it gives you will be priceless.

  10. Trent- I believe you should look into some cons of the 529 plans. For example, what if they lose value like so many of them have this year.

    The legislation that grants 529s tax-free status expires after 2010. It’s anticipated that the law will eventually become permanent, but Congress is dragging its heels.

    You must choose from among the mutual fund-type investments offered within the plan. Further, you can only change your investment choices once every 12 months.

    Perhaps, people shuold search for ways to prepay tomorrow’s college tuition at today’s prices.

  11. I’ve seen you post about 529 plans a few times, but I haven’t heard much about ESA’s. What do you know about Education Savings Accounts and why did you choose 529 over ESA?

  12. I just met with a financial adviser for the second time. He showed me some numbers and I’m not anywhere near ready to decide on how I will invest beyond my 401k, but I did apply for disability insurance. I didn’t think I needed it; my employer provides it and I pay a couple of bucks per month to make it better coverage. However, it appears that it’s very difficult to qualify for even their disability standards, and it is reduced by the amount Social Security would pay EVEN IF I don’t actually qualify for and receive that govt disability (we all know it’s very hard to qualify for that).

    I’m single with no kids, but I don’t want to face a future disabled with limited or no income. This plan would pay 80% after 90 days until I’m 65, and at almost 33 years old, will run me about $20 a month for now. Now I just have to see if I actually qualify for it after the underwriters look at health history…

    I wish more people knew about this critical insurance. I have an emergency fund, but that won’t do me any good after the first year (if that long) if I cannot work a long enough day to keep my current job, but yet CAN work a lesser job for less pay–which would disqualify me for the employer and gov’t disability.

  13. Long-term care and disability insurance are 2 different products, and if you want legal insurance Prepaid Legal insurance is about $25 month and mine included a free will that can be updated annually.
    Also, any “benefits” you get at a job is usually only good as long as you work there so it’s wise to have your own personal policy.
    check out my website primerica.com/bethchavez
    I’m also a high school teacher and I have my own personal policies apart from school.

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