Written by: Vanessa McElWrath, CFP®
A new baby can bring about a lot of changes to a family. In the beginning, you’re sleep deprived, juggling naps and feeding schedules, and adjusting to life with your new addition. So before your baby takes their first step, take some of your own to ensure you make smart financial decisions from the start.
Plan for new expenses
One of the biggest expenses related to a new baby is childcare. As a first step, review your budget and have an honest conversation with your partner about childcare expectations. Is daycare or a nanny feasible or will one spouse stay home? And if one parent stays home, consider the potential impact of an interruption in career path. You should also review your savings buckets and make sure you have emergency savings built up. A good rule of thumb is somewhere between 3-6 months’ worth of expenses in conservative, liquid investments.
Update your estate plan
Having a baby changes everything. If you haven’t created an estate plan, you will want to do so immediately. An estate plan consists of your will, trust, and guardianship documents to make sure that your baby is cared for in the event of your death and that your property passes to the right person. Sometimes the guardian for your child and your assets are different people- and that’s ok. If you already have an existing estate plan, a new baby is a great reason to revisit and update your documents.
Start saving for college now
Now is a good time to establish a 529 plan, a tax-advantaged and low maintenance way to save for college and now private school tuition from elementary school onward. Most plans have automatic investments that allow you to ‘set it and forget it.’ Since each state offers its own plan, you should search for a plan that has low cost investment options and low annual fees. But as a very important caveat, you should avoid putting education savings above retirement savings! If you don’t have enough in retirement, your kids may have to bail you out down the road.
Consider insurance- both life and disability
Although adequate health insurance is critical, you will also want to give careful consideration to life insurance coverage and disability income insurance. Review your current benefits package and see what may be offered to you through your employer. You may consider increasing the coverage after taking a new baby into consideration.
Please contact us if we can be of any assistance during your annual planning.