It’s incredibly exciting to think about having a new baby. However, there is so much to think about that first-time parents frequently neglect crucial financial planning details in favor of setting up the nursery, making a registry, or picking the ideal name.
Adding to your “new-parent” planning list should be a new set of financial considerations that come with growing your family. Here are our top eight things to think about during this essential period of your life.
Budgeting
Babies cost a lot of money, in general! While you don’t have to micromanage every expense, establishing a high-level budget will help you make sure that spending is in line with your needs and that you are allocating funds to the proper areas to achieve long-term goals.
If you or your spouse intend to take unpaid time off from work, you must consider this. Check out the benefits available to you under your company’s parental leave policies so you can prepare for how they can affect your budget.
Savings plan for your kids
When having a baby, there are many things to prioritize. Suddenly, you start to think about a little new human instead of just you and your spouse. Planning for your child’s financial future should be a major aspect of that focus.
One of the most fruitful lifelong presents you can give someone is the foundation of an investment account early in their lives. Establishing an account for family and friends to contribute to can have a significant long-term influence when children are younger and less interested in receiving gifts. This can be done instead of giving them another piece of bright plastic.
There are a variety of savings options to think about. It requires some research and advice to determine which is best for your family and how much you ought to set aside each month or year.
Retirement savings and a cash reserve
You can’t finance your retirement, therefore think about putting your retirement planning first and foremost to create your financial stability before attempting to fully fund any objectives you might have for your children. Setting your children up for success is vital, but so is ensuring your own financial security: as the phrase goes, “you can’t finance your retirement.”
Begin by making sure you have enough cash on hand. As a general rule, keep three to six months’ worth of spending in cash. If both couples work, it may make sense to aim toward the lower end of that range. On the other hand, if your home is solely supported by one salary, keeping a little more cash on hand may be beneficial. Everyone’s level of comfort is different, so figure out what works best for your family.
Your employer-sponsored retirement plan, and making sure you receive any employer match that is available to you, is the next “bucket” to concentrate on. You end up losing income if you don’t do it.
Paying off high-interest debt is another strategy to increase savings, along with contributing to a Roth IRA if you’re qualified, maxing out your employer’s retirement savings program, and contributing to a health savings account (HSA) if your medical insurance plan permits it. If you still have extra cash after these deductions, an after-tax brokerage account is another approach to diversifying your investment portfolio.
Health coverage
Most health insurance policies allow you to change your coverage within 30 days of the birth of your kid since it counts as a qualified life event. Reviewing all of your options at this time is crucial.
Study the health benefits offered by each company if there are two working parents in the situation to decide whether it makes sense to enroll the child in one family plan or add them to one of your individual policies. Two important factors to take into account are the cost and the coverage that is offered.
Life insurance
Most families will require at least one life insurance coverage for one or both parents. The most typical reason for purchasing life insurance is to replace income if one or both parents die early.
Adequate insurance will ensure that your dependents can continue to live their normal lives without worrying about their capacity to pay their bills. It is also a good idea to carry enough insurance to cover your home and college expenses. Examine your employer’s benefit plan to see if you are covered. Term insurance is frequently the least expensive solution for this necessity.
Long-term disability
Without being repetitive, it’s crucial to confirm your employer’s benefits coverage first and make sure you’re registered in any accessible long-term disability plans. The benefit should, at the very least, equal 50–60% of your total income.
The benefit is not taxable to you if you pay the premiums (as opposed to your employer). If your income is highly reliant on bonus/commission or atypical remuneration, you may want to consider supplemental coverage.
Estate preparation
Estate planning is another item that comes to mind while beginning a family. Most individuals find it difficult to discuss, yet it is critical to have a plan in place before any unanticipated scenario or disaster. A basic plan includes a will, guardianship directions for minor children, a durable power of attorney, a healthcare power of attorney, and, possibly, a trust at a certain point.
Adoption & infertility
Adoption and infertility require considerable planning. Because every scenario is different, there is no universal solution. Start by looking through any potential workplace benefits.
Whether you are undergoing fertility treatments or the adoption process, several layers of expenses can mount up rapidly (especially if it’s out of pocket!). Infertility treatments may be covered in part by health insurance. Furthermore, some employers provide adoption perks such as monetary reimbursement up to a particular amount.
You can change your budget and make financial preparations if you review your benefits in advance. Many costs associated with infertility are covered by HSA and FSA funds, but your specific situation should be taken into consideration.
Medical expenses are coverable under FSAs, HSAs, and HRAs after an adopted child qualifies as a dependent. Under these programs, adoption payments are not reimbursable.
The agency or clinic you’re working with might also provide alternative financing options and financial counseling. Last but not least, you should discuss any potential tax credits and deductions with your tax preparer for adoption-related expenses.
Consulting a Professional
There comes a time when the strain of financial planning mentally overwhelms some people. Others would rather devote their free time to the lovely family they have built. In either situation, getting professional assistance can make you feel more confident that your plan is on the correct track and that you are getting proactive planning suggestions.
If you have more questions about financial planning, feel free to reach out to Savvy Financials today! Our team can guide you through all elements of your finances as your family faces this significant change.