- As new parents, a proactive plan to handle the expected and unexpected is essential to your peace of mind
- Being in control of your monthly expenses and having an emergency fund are foundational elements
- A little bit of protection – the right insurance and estate planning documents – can guard against a big financial loss
- An emergency response plan can help you navigate the unexpected with clarity and confidence
- With the right foundation, you can focus on saving and investing for your family's future
Becoming a parent is one of the most exciting, and challenging, experiences most of us will have. Suddenly, you may realize just how important it is to have a plan to protect the people you love most. Even if you’re not sleep-deprived, the to-do lists can feel daunting. But the best way to experience being a mom or dad is with the freedom from worry that comes from being well prepared.
Where should you begin? Here are three important steps to building a strong foundation, so you can enjoy worry-free time with your new baby.
Budgeting, Taxes and Expecting the Unexpected
When you have a new child, everything changes--even your money! Staying in control of your monthly budget alleviates stress and creates financial stability. Even if you’re playing catch up, it’s never too late to create a realistic outline of how much money you need each month for your new family member.
Give yourself some time to adjust to your new monthly expenses. Track your purchases so you know where your money goes and you can adjust your budget accordingly. And don’t forget about taxes. As a new mom or dad, you may qualify for some big tax credits. Know if you qualify, and adjust your tax withholdings accordingly so you bring more money home each month.
Plan for big expenses, like child care, as far ahead as possible, ideally 6-12 months in advance. And one quick tip for parents, start applying for daycare ASAP--this will help you find the highest quality option at the right price point for you.
Remember to plan for the unexpected, since surprise expenses are more common with a new baby in your household. If you don’t already have an emergency fund, start building one now. Even if you start small, a financial cushion will help alleviate your anxiety and build financial security.
A Little Protection Can Have a Big Impact
There are a few essential protections every family needs. If you’re putting off these tasks (and many people do), remember that these legal and financial protections are for the people you love when they’re at their most vulnerable. Take care of them now, and your family will be secure for years to come.
Insurance - Many parents don’t know that a new child won’t automatically be added to your health plan; you’ll need to contact your HR department to do that after the baby is born. You may also want to consider funding tax-favored accounts for healthcare expenses. You’ll need to choose between a flexible spending account (FSA) or a health savings account (HSA) depending on your coverage. You’ll also need disability insurance, to make up for lost income if you’re unable to work. Finally, you’ll want life insurance for both parents, even if one of you will be staying at home. The amount you need can vary based upon your income, debt you carry, existing savings and investments, and your education plans.
Estate Planning - Aren’t estate plans for people like Jeff Bezos? Yes and no. We aren’t talking about saving taxes on your billions. For most of us, estate planning means taking a few simple steps to ensure your family is financially secure. Both parents need wills (and possibly a trust), as well as legal documents for financial and healthcare decisions (a power of attorney and an advanced directive) in the event you can’t make them on your own. Finally, keep in mind some accounts, and life insurance, require that you name who will inherit the money – you may hear this referred to as naming your beneficiaries.
A Peace of Mind Plan - The odds are you’ll never need it, but having a response plan for health emergencies, car accidents, or natural disasters, is essential to creating peace of mind. Make sure you have this information organized and ready to go:
- Social Security Numbers
- Birth certificates
- Wills and other legal documents
- Contact and policy information for insurance providers
- Contact information for other professionals (doctors, financial planner, attorney)
- Username and password information for important websites
You may even want to share this information with your family. Emergencies might be rare, but you will be glad you planned in advance if the unexpected happens.
Look Forward to the Future
Once your legal and financial foundation is in place, you’ll breathe a little easier, so you can turn your attention to your family’s future goals, like buying that dream home.
You’ll also need to get started with a college savings plan. Even if you start with $100 per month (or whatever you can do), setting up and funding a savings account for education (a 529 plan) is a great investment to make in their future. And while your energy will be focused on your new baby, remember to keep an eye on your own financial wellness. Make sure you carve out time to look at your retirement savings.
One final tip for parents: take the time to talk about what money means to your family. It’s important to keep the lines of communication open about everything from day-to-day expenses to major expenditures – like paying for college.
Early parenthood doesn’t have to be an anxious time--with these key protections in place for your family, you’ll feel safer, happier, and less stressed. As a result, you’ll get more joy, and less anxiety, out of spending time with your new baby.
There’s a lot to think about as a new mom or dad, and you want to make smart decisions that put you in control of the life you want for your family. To learn how a personalized financial plan can protect your family and help you plan for your future, schedule a free introductory call with a CFP® Professional at Facet Wealth.