Three Financial Moves to Make After Having a Baby
If you are a new parent, no doubt your hands are full, literally, all the time. While you are busy caring for the health of your family’s new addition, there are three essential financial moves to make to ensure a healthy financial future as well.
1. Start Saving for College. Many parents wait until their child is in high school to begin thinking about the nightmare of paying for college. With tuition on the rise and more young people starting their professional lives with mounds of student loan debt than ever before, it is prudent to consider starting a savings plan as soon as possible. There are three popular vehicles for college savings plans: 529 plans, Education Savings Accounts (ESAs), or permanent life insurance. A good financial professional will be able to explain the pros and cons of each vehicle and help you pick the right one for you.
2. Review/Write your will. If you don’t have a will in place, now is the time to do so. A will is a legal document that dictates how your property and children would be cared for in your absence. The main point here is to ensure that you appoint a guardian for your child and a trustee for your financial assets. They can be the same person or two separate people. If you pass away with no will in place, both your financial assets as well as your children rely on the judgement of the state court to make these decisions for you in what can be a long and painful process called probate. Wills do not take a long time to create, and for the basic documents it is relatively inexpensive. To check this off the list, simply meet with an estate planning attorney. Yes, there are websites where you can set it up cheaply and quickly, but some couples find out the hard way that the wise counsel of an attorney is invaluable.
3. Review insurance policies. Once baby is born, you want to make sure that little bundle is immediately added to your health insurance plan. You should also make the time to review your disability insurance policy if you and/or your spouse are providing necessary income. Most group disability policies, the ones you get through work, pay about 50% of your income if you become disabled. Another thing to be aware of is that if this policy is funded with pre-tax dollars, as most are, the benefit you receive will be taxable as income. Getting an individual policy is a great way to protect as much of your income as possible. You can purchase these as your only policy or use them to supplement your group policy to protect more income inexpensively. Along with disability insurance, life insurance is a must-have for new parents. There is now a little one who is dependent upon your income to eat, be clothed, and have constant care. Having a life insurance policy in place can be a very inexpensive way to make sure that no matter what happens, your child will be taken care of financially. Meet with your financial professional to decide what kind of policy is right for you and how much to buy. Think in terms of how much income the insurance could provide. For example, $1,000,000 of insurance could sit in an investment account, and by most standards, provide 4% income because it is earning interest, so $1,000,000 provides $40,000 in annual income. A general guideline is to try to replace as much of your income as possible.
Thank you for taking the time to read this. If you enjoyed it and would like more articles please like and follow my Facebook page. @ Dan Stange, Financial Representative