Written by Ted James of www.tedknowsmoney.com
Becoming a parent changes your world—and your priorities—in many ways. One significant consideration for new parents is how to best plan for your financial future and that of your child. Here are six things you should do ASAP.
Think Critically About Life Insurance
Life insurance for you, your partner, or both can provide for your child if disaster strikes. For most parents, term life insurance is an ideal solution. It can cover you until your child reaches adulthood, meaning the policy gives you peace of mind without costing you over the long term.
You can also cover unexpected expenses with burial insurance. While it may seem intimidating to contemplate as a new parent, if you were to pass away suddenly, burial insurance helps cover final expenses like funeral costs and medical bills. Investigate average burial expenses in your area and shop for the best rate to ease your family’s potential financial burden.
Update Your Will
Ideally, you already have a will that only requires updating now that you have a baby. The most common change to a parent’s will is a clause on guardianship, which requires an attorney to adjust. You can also draw up guardianship forms without a will, however.
Other legal steps you can take without a lawyer’s involvement include drafting a living will and designating beneficiaries for your assets. For example, to leave a 401(k) fund to your child, you’ll need to file the appropriate forms with the company that oversees the account.
Start Saving for Your Child Right Away
Whether you want your child to attend college or hope to help them buy a car when they turn 16, opening a savings account is a thoughtful step. And the sooner you open a baby savings account, the sooner you can take advantage of compound interest.
U.S. News recommends choosing a bank account with no fees, low minimum balance requirements, and flexible withdrawal limits for later. Alternatively, you can choose a 529 plan, which gives certain tax advantages but also limits spending to qualified tuition expenses.
Whatever account type you choose, the most crucial part is starting ASAP so your child’s savings can grow.
Keep Health Insurance Current
Depending on your health insurance plan—whether employer-sponsored or otherwise—you may have a limited window to add your infant to your policy. While the birth or adoption of a child counts as a qualifier for special enrollment (outside normal enrollment periods), you likely have only 60 days to make policy changes.
The good news is that even if you miss qualification periods, there are other options. For example, a Medicaid-backed Children’s Health Insurance Program (CHIP) provides coverage for eligible children without other health insurance.
Invest In an Emergency Fund
Even with every type of insurance available, families still encounter unexpected financial burdens. Whether a vehicle breaks down or your child’s health insurance doesn’t cover a specific treatment, having an emergency fund can help ease such stressors.
Budgeting for savings should be part of your plan already, but if not, add it to your parenting toolkit. Experts recommend that an emergency fund should cover three to six months’ worth of expenses, minimum. Conservatively invest for better odds of seeing a gain on your fund—otherwise, you’ll be losing value if the cash sits over the years.
Don’t Forget About Retirement
With a new baby, you’re likely focusing on your child’s future instead of your own. But think ahead: When you’re older, do you want your child or children to be responsible for you? Maintaining your retirement fund is one surefire way to preserve your children’s future and your own.
If you’re not already contributing to your retirement, make it a priority. Before diverting funds to your child’s savings account or educational plan, ensure your financial future is safe, too.
Becoming a new parent can feel all-encompassing. Between sleepless nights and your regular adult responsibilities, considering your finances might not be a priority. Of course, it should be—and taking these steps ASAP can help preserve your family’s financial future.