Becoming a parent can be one of the most exciting times in a person’s life. It can also be one of the most challenging and exhausting. Often, it’s all three at the same time! Kids are expensive, as we all know, but there are more financial considerations to keep in mind as you’re preparing for this new chapter in life. However, with a little planning and forethought, you can set yourself and your family up for greater financial security in the future.
One quick note: It’s true that starting a family via birth or adoption have some notable differences, but they also have a lot of similarities, especially when it comes to shoring up your finances. So, in this message, I’ll be speaking to both scenarios.
1. Plan ahead for additional expenses. You’ve no doubt thought about the costs associated with starting a family, such as buying any furniture and gadgets you need to make your new kiddo as safe, comfortable, and happy as possible. But a bigger family also means more mouths to feed, bodies to clothe, and beds needed on vacation. One cost many new parents don’t anticipate is a jump in health insurance premiums as they switch over from two-adult coverage to family coverage. You might want more comprehensive health insurance, too. After all, two healthy young adults can usually get by just fine on a high-deductible plan. However, paying out of pocket until you reach that cap when you’re going back and forth from the doctor for checkups or because the new light of your life put a Lego up their nose can add up quickly. A higher-coverage account may cost more up front but could save you a lot over time. For these reasons, it’s important to plan ahead for additional costs rather than reacting to them as they happen.
2. Consider a 529 plan. Yes, we’ve been talking about your life getting more expensive, but saving for your baby’s future education as early as possible can pay major dividends down the road. One way to do this is to set up a 529 plan. Even if you’re not currently in a position to make significant contributions to it, whatever you can put away will have longer grown potential—and, as a result, give you bigger bang for your buck. As time goes on, you can, and should, adjust the amount you contribute according to whatever else is making demands on your budget. But the earlier you start putting something away, the better shape you and your child will be in when those tuition bills start arriving in the mail.
3. Create an estate plan or update the one you already have. Welcoming a new member of the family is not typically the kind of event that gets people thinking about their own mortality. But here’s the thing: Nobody ever regretted creating an estate plan for themselves and their family. With a new child, people often rethink their priorities—both in terms of how they want their assets divided after they pass, and in how they want to direct their earning strategy. When you’re providing care for a loved one, especially a child, you’ll want to think of how you can continue to care for them even when you’re gone. For minor children, you’ll want to name who you want to act as guardians if necessary (but talk to those friends or family members first). For adult children, “care” refers more to passing down money, investments, or other assets. Either way, there’s all sorts of important decisions that need to be made, including writing a will, setting up trusts, and more.
As I tell my clients often, revisit your estate plan frequently, and start when you think you’re far too young to have one. You never know when it might be needed, which is why it’s always best to be prepared.
4. Get other ducks in a row. Children can be a great tax break, but only if they’ve got a social security card or tax number. When you’re bringing a new baby home, you’re probably thinking about a million other things, but this paperwork is important and getting it done as soon as possible means you can put it out of your mind. Much like updating health insurance and your estate, make sure you revisit your life and disability insurance policies. Your beneficiary probably won’t change at this point, assuming it’s your partner, but you may want to increase the size of your policies to give you or your family a greater payout if needed. And while you’re at it, revisit your emergency fund, and make sure you have enough to carry the family through for whatever life has in store, especially through these chaotic and wonderful next few years!
Of course, this list can’t prepare you for every financial eventuality—no one is ever fully prepared when it comes to having children! And that’s okay, because so much of the joy that comes with being a parent is in all the discoveries you make along the way. But I hope this gives you a few starting points for how to move forward with confidence as you proceed with this wonderful new chapter of your life.
As always, please let me know if I can ever be of assistance in any way. They say it takes a village to raise a child…and what is a village without its resident financial professional?
Sincerely yours,
Joe Garrett
This material was provided for Joe Garrett’s use.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
