Welcoming a new child into your family means lots of changes. Amid the joy and celebration are worries over finances and your family’s future. But with these tips, you can exercise your financial smarts and prep for the future with your loved ones—and enjoy all the milestones of your tot’s first years.
Life Insurance Should Be Your Top Priority
Whether you’re a single or dual-income family, you should make plans to cover living expenses if either half of your partnership meets an unexpected demise. For single parents, this is an especially crucial step. But even for families with a stay-at-home mom, life insurance for both parents might be wise. Therefore, obtaining life insurance is a smart financial move that new parents should be thinking about ASAP.
Of course, it can seem daunting to go out and get life insurance right after welcoming a new baby. After all, there are medical exams and tons of paperwork to complete, right? The truth is that many plans do require an exam, but many don’t; simplified issues, medically underwritten, and guaranteed issue plans have no medical exam requirements.
The biggest decision you will need to make is what type of life insurance to select. The most common choices are either term or whole life insurance. Both cover your family if anything happens to you, but term life insurance has an expiry date—and it’s not the time of your passing. Term life insurance lasts for a set limit—such as 20 years—to ensure your children reach adulthood without feeling the financial burden of losing a parent. Whole life insurance, in contrast, lasts your entire life, regardless of the age or status of your children.
Providing for Yourself Is Still Vital
Though you have just welcomed a new person into your family, you still need to prioritize your future. While saving for your new baby is financially savvy, you also need to consider your life beyond your kids’ college graduation.
Thinking about your retirement is a sobering thought as you become a new parent, but the truth is that you needretirement more than your kids need college funds. Therefore, you should prioritize investing in your retirement or 401(k) account. Then, as you can budget for it, you can start saving for your kids.
By the time you retire, you should be able to make up about 70 percent of your annual pre-retirement income. Keep tabs on your investments to ensure you reach that target.
Think Ahead to Cover College Expenses
Yes, your child is still an infant, but there’s no better time to start saving toward college. Setting aside a small amount now can mean big returns later. Plus, educational plans like the 529 plan are tax-advantaged, meaning tax won’t come out with disbursements of funds for college expenses.
If you’d rather not invest in college savings—in case your child has different ideas about their future—you can set aside funds another way. You can save money for kids in many ways, but a few of the most popular are via a custodial account, through your Roth IRA, in a trust fund, or through a health savings account.
Opening a savings account in your child’s name (many banks offer specialized kids’ accounts) can also present opportunities for financial education throughout your little one’s life. You can even start with your toddler’s piggy bank for an early advantage.
Your Slush Fund Should Actually Be an Emergency Fund
Plenty of families siphon cash into an account for fun stuff each month. And it’s true that you need to live a little while working to make a comfortable life. But instead of spending haphazardly out of such an account, you should aim to save enough to cover three to six months’ worth of living expenses. This way, if an emergency occurs, you’ll have a buffer to get you by.
Take Care of Your Business
If you’re a business owner and a new parent, you may be a little overwhelmed at the moment. However, it’s important that you still spend time managing your business to the best of your ability to ensure that everything stays above board. If you’re starting a new business, ensure that you’ve filed the proper paperwork with the state (such as registering as an LLC, if you choose to go that route), your taxes are paid up, and your finances are given a once-over every day. It may seem like a lot, but following these steps will make sure you, your family, and your business are taken care of.
While it can cost you a pretty penny to raise a child, thinking about your finances shouldn’t be daunting. With a thoughtful and well-balanced plan in place, you can save for your child’s future and the next steps in your own financial journey.
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