Financial Planning for Young Families
My husband Marc and I welcomed our first child to our family in October 2020. It was a truly magical experience, and our son has forever changed our lives in the best possible way.
Being the planning type, loving a good to-do list and having lots of time at home during the pandemic created the perfect environment for me to prepare for his arrival. In addition to buying baby furniture and clothes and daydreaming about what our future baby might be like, we focused on getting all aspects of our finances in order in the nine months leading up to his arrival. Here is a suggested blueprint for how you, too, can prepare.
1st Trimester: Insurance
Health – Do the math to determine which policy your child should be covered under and whether it makes sense for both parents and child to join a single-family policy. It is not uncommon for the child to be listed under one parent’s insurance policy and for the other parent to continue to keep their own policy under their employer. In addition to cost, you also should consider which insurance policy offers the best benefits or list of in-network providers. Insurance policies will allow you to add a new baby even outside of the enrollment period. You should call your HR department and insurance company to ask for any other logistical details on adding a new family member to your policy.
Life – You may need to buy more life insurance than you already have. Both parents, whether they work outside the home or not, should have life insurance to cover lost wages, child-care expenses and college costs. Pregnancies can sometimes be complicated by issues like gestational diabetes, so I suggest getting life insurance as early in the pregnancy as possible. Term insurance, typically 20- or 30- year guaranteed level premium, offers the most bang for your buck.
Disability – Your employer may already provide some coverage but it can make sense to purchase more. Disability is unpredictable and can happen to anyone at any age, taking away financial support from family members dependent on the income.
2nd Trimester: Saving
We all know that babies are cute, and also expensive! I recommend putting together a realistic budget that you can stick to. The budget should include saving money in your own retirement plans, and in a 529 college savings plan for the child. Even saving a small amount of money each month can add up to substantial savings in the long run. In addition, you should have an emergency fund that has six to 12 months of living expenses in cash.
This is also a good time to start deciding who will take care of your child. Will one parent stay home? Day care? Nanny? Relative? These decisions will factor prominently into your budget.
3rd Trimester: Estate Planning
Creating a will is especially important for people with young children. As long as you are establishing it as the cornerstone of an estate plan, it makes sense to put the other basics into place too.
- Will: Appoints guardians for your minor or dependent children and outlines exactly how you would like your property distributed. If you do not put a will in place, the court will decide.
- Living will/advance directive: Your wishes for end-of-life care. Do you want extraordinary measures taken?
- Durable power of attorney (DPOA) for health care: Provides a trusted person the authority to carry out the wishes in your living will/advance directive and to make other medical decisions if you are not able to do so.
- Durable power of attorney for finances: Similar to a DPOA for health care but it gives a trusted person authority over your assets.
- Revocable/living trust: All assets are put into the trust during your lifetime and remain in your complete control. After you die, a trustee named by you will distribute the assets according to your instructions while avoiding probate.
Month One of New Baby
Congratulations – your little bundle of joy has arrived! Here is a list of a few items that should be completed within the first couple of weeks of your baby’s arrival:
- Add the baby to your or your spouse’s health insurance policy.
- Obtain a birth certificate for your baby. The hospital will help you with this process, and you can order formal copies of the birth certificate online once you arrive home.
- Apply for a Social Security number for the new member of your family.
- Once you receive their Social Security card, start a 529 plan for the baby. Saving even a little each month can go a long way over 18 years. Many states also offer a tax deduction on your state tax return if you use your state’s plan. A great website to learn more and do research on the different plan options is www.savingforcollege.com.
- Update retirement account beneficiaries – IRA, 401(k), 403(b), etc.
Having a new baby is a joy and sometimes hard work! Tackling this to-do list proactively will help you enjoy your first months with your baby, and give you the confidence to know that your financial picture is secure for the newest member of your family. Time goes fast – tick off the to-do’s and enjoy the newest member of your family.
The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.