7 Financial Planning Tips for New Parents
Along with the joys of welcoming a newborn into your family come more financial responsibilities. The considerations range from immediate to long-term, or must-haves to nice-to-haves. The following are 7 financial planning responsibilities to expect when you're expecting.
1. Initial Costs
The initial costs of welcoming a child can be thought of as your growing family’s “start-up costs.” These costs include buying new furniture and baby gear (clothes, diapers, crib, stroller, bassinet, highchair, etc.), pre-natal medical care, and the cost of delivering your baby.
Regarding the new gear you’ll want for your little one, you can assemble a list or even create a baby registry. You may get a lot of help from family and loved ones. It’s helpful to put this list together and decide what you may request on a registry and what you will be purchasing.
Review your insurance coverage and/or contact your health insurance provider to understand what to expect. Is pre-natal care covered by your insurance? What out-of-pocket costs should you expect from your pre-natal visits and delivering your baby?
2. Life Insurance
Buying a house and having a child are the two biggest triggers of needing to look into life insurance.
Although your due date may be many months in the future, you shouldn’t wait to review your life insurance needs until then. Your financial responsibility to provide for your family in the event of your untimely death starts once you’re expecting, not when you bring your baby home.
The estimated cost of raising a child is $15,000 per year, and that doesn't include saving for college. Getting coverage for these new responsibilities is why having a child is a common trigger for acquiring life insurance.
For working families, childcare is a significant expense to account for in your budget. As soon as you learn you are expecting, it’s wise to begin looking into childcare facilities and availability.
Develop a plan with your partner for the type and duration of childcare you want. At-home nanny or daycare facility? Full-time care or part-time? Will any family be helping out?
If you plan on a daycare facility, the sooner you contact the facility, schedule a tour, and get on a waitlist, the better. Waiting lists may be several months (or more) in length and require an initial deposit to hold your spot.
4. Health Insurance
Review your current health insurance coverage and the cost of adding your child to your policy. Employer-provided health insurance premiums will often vary based on who is covered: just you (the employee), employee plus spouse, or employee plus family.
You and your spouse may be on separate policies from your respective employers. Review coverage and the cost of adding a child to either policy.
You do not need to make changes to your health insurance until your child is born. But have a plan in place for adding your child to your insurance coverage and understand how your insurance premium will be impacted.
5. Review Your Budget
As noted previously, at an estimated $15,000 per year, raising a child isn’t cheap. However, these costs will vary significantly based on the items we have discussed to this point, your location, your preferences, and more.
As a starting point in estimating how your family's new addition will impact your finances, review your current budget. Then, take into consideration estimates for life insurance premiums, changes to your health insurance, childcare, and more.
Identify where you will cut back your spending and/or saving to make room for your new expenses and/or saving. Your newborn will likely force you to spend less on things like travel and dining out, but you may also plan to cut back on retirement savings to keep things afloat while you are paying for daycare.
6. Estate Planning
Estate planning is also in order once your little one is on the way. Estate planning includes ensuring your beneficiaries are up-to-date, a guardian is named for your child, and basic estate documents are in place.
Reviewing beneficiary designations is critical because, even if you have a will in place, beneficiary designations take precedence over what’s been specified in your will or other estate documents. This means even if your will states you want your assets to be transferred to your spouse, if you have an ex-spouse listed as the account beneficiary, then the account would go to your ex-spouse.
Review beneficiaries you have specified on life insurance policies, retirement accounts, investment accounts, bank accounts, and all other assets to ensure they align with your desires.
Without a named guardian for your children, the court will name a guardian on your behalf should anything happen to you. It’s valuable for you and your partner to (1) determine whom you would want to assume this responsibility, (2) ensure your child’s guardian welcomes this role, (3) specify your wishes, and (4) ensure your guardian will have the financial means to thrive in this capacity.
Although odds are extremely low that a guardian would be called into action, taking the steps to prepare for this unlikely event comes with your newfound parenthood.
Basic Estate Documents
“Estate planning” need not be intimidating. Estate planning essentially means making a plan for what you want to happen to your affairs upon your death.
Whether you make an estate plan or not, you have an estate. It’s up to you to decide whether you want to provide instructions for your estate or leave it up to the courts.
Creating a will, specifying healthcare directives, and potentially funding a trust will ensure your desires are known and your loved ones will be taken care of. This is especially important for new parents with minor children.
7. Education Funding
Although beginning to fund your child’s education is not a necessity at this stage, starting early lets you take advantage of compounding investment returns. Starting today compared to starting in a few years could mean having to save thousands of dollars less each year for your child’s education.
Discuss your goals for funding your child’s education with your partner and explore your options for education savings. Family may also want to contribute to education savings accounts, so it may be helpful to set up this account even if you don't intend to contribute regularly just yet.
Your New Responsibilities
While perhaps not as fun as organizing the nursery (but hopefully more fun than assembling the crib), the preceding checklist should allow you to feel financially prepared for your new arrival. And it's also something the dads may take the lead on, as there is only so much we can do in the nine months leading up to their birth of your child.