For new or expectant parents, this is such an exciting time! As you enter this new phase of your life, there are many aspects of your financial life that you should not ignore. Here are ten financial tips for new parents to consider.
- Have a plan. Everyone has a plan whether by design or default. What are your financial goals? What are your personal goals? Sit down with your family, spouse or partner and review the goals you have together. How will the new addition impact those goals? Determine where you want to be in both the short term and the long term.
- Make a budget and stick to it. Track your income and expenses and make a reasonable plan for where each dollar will go each month. Make sure savings is included! One great idea is to have separate bank accounts for different savings you might need. Emergency savings of six months should be your number one priority. You might set up a savings for down payments on a big-ticket item like a car or a house. Set up savings for fun times like vacations too!
- Eliminate or minimize debt. Two popular ways of reducing and eliminating debt are the snowball method and the avalanche method. Under the snowball method, you start with the smallest debt first while paying the minimum debt on all other debts. The avalanche method attacks the debt with the highest interest rate first while paying the minimum on the rest of your debts. Under both methods, once you pay off one debt you apply whatever you were paying on that debt to the next one in line.
- Continue to save in your retirement plan. The earlier you start the more time your money can grow for you. Do not neglect your retirement needs in lieu of your savings for your children or paying off debt. Even if you must start out small, start there. Every time you receive a raise, increase your savings into the retirement plan as well. If your employer matches your contributions, find out the amount you need to contribute to receive the maximum match. If you are not contributing at that level, you are giving money back to your employer.
- Save for your dependents’ education. Childhood passes quickly! Opportunities exist to start educational IRAs, 529 plans, pre-paid tuition plans and trusts. The earlier you start, the more you will have saved when that time comes. Investigate your options with a qualified professional. Make sure you understand what parameters you and your child must adhere to once they are at adulthood.
- Have a will. You should decide who takes care of your child – along with any other assets you have. Have discussions with family and friends on all these issues. Then consult with an attorney, if possible. If you do have a will already, revisit the one you have in place to make sure your new addition is taken care of.
- Buy insurance wisely. You will have 30 days to add a child to your company health insurance plan. Make sure your life insurance fits your new family dynamic. Do you have adequate protection for your growing family if something should happen to one or both parents? There are many options to choose from including term and whole life. Be sure that you don’t over insure and spend money on things you will not need.
- Take advantage of other company benefits. Does your company have any benefits you are currently not using? Financial Wellness? Student Loan Assistance? Health Savings Accounts? Flexible Spending Accounts? Disability Benefits? Would your family benefit from these now?
- Update your beneficiary designations. Your life insurance and retirement plans are not subject to your will. Make sure that the listed beneficiary or contingent beneficiary on your accounts takes into consideration your new child.
- Enjoy the small things. No, this is not one of the financial tips for new parents. This is an old parent giving advice. The years pass quickly. These little struggles now that you will face will be gone in a flash. Diapers turn into baseball games and gymnastics meets which turn into parent-taught drivers’ education and prom. Take that PTO when you have it available. Go on that family vacation. Take a day off for the beach or to build a snowman. Time is one thing you can never get back.
Remember to contact ML&R Wealth Management to help with your financial and planning needs along the way.