From creating a solid financial foundation to navigating the complexities of insurance and estate planning, financial decisions can seem daunting. But with a little planning—and some practical tips— you can confidently pave the way for this exciting journey.
An easy way to save and invest for the future
So here they are, my top 8 financial to-dos for new parents:
- Get life insurance: A good rule of thumb is to have 10x your gross salary saved. I generally recommend term insurance over permanent insurance.
- Update/Create an estate plan: This should include a will, power of attorney, updated beneficiaries, medical directive, and possibly a trust.
- Start saving for college: If you start when your child is born, investing approximately $500/month should be able to fund the cost of an average public university.
- Freeze your newborn’s credit score: This can help prevent identity theft of your newborn. You’ll want to do this for each of the three main credit bureaus, Equifax, Experian, and TransUnion.
- Update your health insurance: Make sure to add your newborn to your health insurance. Some parents may also wish to change to a plan with a lower deductible to help minimize risk.
- Research tax benefits: A quick scroll on Instagram will reveal tips for structuring your finances to accrue tax benefits with kids. You’ll want to look into some of these, among others: the Child Tax Credit and Child and Dependent Care Credit.
- Update your budget: A newborn baby can be a shock to your finances. Here are some common expenses to consider when updating your budget:
- Childcare: The average cost of daycare is $321/week. The average cost of a full-time nanny is $766/week. So it’s a good idea to call child care centers in your area to get a sense of what you’ll need—and how far out to reserve your spot.
- Daily newborn items: Diapers, wipes, formulas, bottles, clothes, toys, medicine, books—the list goes on.
- Healthcare: Depending on your health insurance, you’ll likely be paying more each paycheck.
- Rent or mortgage: Maybe you need more space, or are considering a renovation—or even a move to be closer to family.
- Discretionary spending: You may need to temporarily cut back on things like shopping, vacation, and dining out (probably not a problem with a newborn anyway) to make room for your newborn expenses.
- Increase your emergency fund: Once you’ve updated your budget and have a handle on your fixed monthly expenses, you will likely need to top up your emergency fund in order to still cover three to six months of expenses.
There’s a lot to consider when preparing for your newborn and their short-term and long-term needs. And of course, each family is different. What type of school your kiddos attend, when you start saving, and where you live will all play a role in the decisions you make.
But, as with saving for most things: Starting early can help you set your family up with a firm financial foundation that grows with your evolving needs.
If you’d like some help with these steps and want to work with our team of CFP® professionals to craft a financial plan tailored to your needs, visit our Premium page to see if it’s right for you.
