How to stay financially sane when your world has been flipped upside down!
Parenthood can be both wonderfully rewarding and frighteningly challenging. Children give gifts only a parent can understand–from sticky-finger hugs to heartfelt pleas to tag along on Saturday morning errands. You raise them with a clear goal that you secretly dread will actually take place–that someday they will be grown, independent, and ready to move out on their own, and your work will be over.
But before you get to that point, as a new parent it’s common to feel that you are in over your head, especially financially.
Take a deep breath–you are not alone.
Read below to learn how to keep your finances in check as you lose sleep, change diapers and clean bottles!
5 Financial Planning Tips for New Parents
1) Develop a new spending plan
The birth of a child is an opportunity for you to set up a new budget or review an existing one. You’ll have to consider the impact that your child will have on your living expenses as well as account for any shift in income that might occur if you decide to quit your job. You’ll also need to save more money to ensure that your family has money to meet its future needs.
The initial outlay for your baby can be quite high. You’ll have to equip your home with baby furniture, a stroller, a high chair, an infant seat, a car seat, bedding, and clothing, among other items. You could spend well over $1,000 equipping your home with just the basics, and many new parents spend a lot more.
However, when you’re shopping for the baby you’re expecting, try to separate emotion from need. Of course, you want your baby to have the best, but you don’t really need the best in most cases. Your baby won’t look any cuter in an expensive crib, and many parents can tell stories about the top-of-the-line stroller they purchased and then found was too heavy to push easily. The best way to proceed is to ask other parents for recommendations, then shop around. Usually, you don’t have to sacrifice quality and safety to save money. If you start shopping far enough ahead, you can find good deals in discount stores, department stores, and superstores. You can also look for items in thrift stores, consignment shops, and yard sales, although finding clean secondhand items in good condition can be a challenge. Ask friends and relatives, too, if you can borrow baby items that they’re not currently using. If your friends are throwing you a shower, ask for items you need.
2) Save for their education
It’s wise to begin saving for your child’s education as early as possible. There are several ways to do this. You can begin by depositing a certain amount every month into a savings or money market account, contribute to a college savings account, purchase Series EE bonds, or take advantage of a wide variety of other investment vehicles. The earlier you start saving, the more time you give your investments to grow.
3) Prepare for emergencies
If you don’t have an emergency fund, now is the time to set one up. If your child gets sick, your car breaks down, you need to move unexpectedly, or you lose your job, you can dip into your emergency account. An emergency account should normally contain an amount that equals three to six months’ worth of living expenses. This is money you should put in the bank and have access to at all times!
4) Set up your Estate Plan
Estate planning is a subject many parents would like to avoid. After all, you’re celebrating new life, and it’s sad to think that you may not be around to raise your child. However, it’s crucial to the welfare of your child that you leave behind instructions that clarify your wishes in the unlikely event that you die before your child grows up. If you don’t currently have a will, now is the time for you (and your partner, if any) to draw one up. If you do have a will, you’ll need to review it. You’ll want to nominate a guardian for your child and decide how you want your assets distributed. You may also consider setting up a trust to protect your child’s interests after your death. You should also review your beneficiary designations.
5) Get covered
Before your child is born or shortly after they arrive, review your insurance coverage to make sure that you and your family are adequately protected. If you or your spouse is going to quit your job(s), you may cut off your life, disability, or health insurance benefits from that job, and you’ll need to buy more coverage.
Having a child will increase your need for life insurance coverage. Many experts recommend that you have life insurance equal to five times your annual salary.
Before you had a child, you may not have worried about becoming disabled. Now that you have one, you may be thinking about what would happen if you suffered an injury or illness and couldn’t work for days, months, or even years. If you’re married, you may be able to rely on your spouse for income, but could your spouse really support all of you?
To protect your family in case your income is cut off due to disability, consider purchasing disability insurance if you don’t already have it. You may have a group disability policy through your employer or you may want to purchase an individual disability insurance policy. A disability policy won’t replace your total income, but it will likely replace 50 to 70 percent of your earnings.
Bundle of Joy
Having a child is an amazing blessing. But it’s not an excuse to let your finances go unchecked. Use these 5 tips to keep you finances in order while experiencing all the joys and challenges of becoming a new parent.
As always, you can consult with me to discuss your current situation.
Look for future posts on the best ways to save for retirement and check out my recent post on how big changes mean big results!
Previously posted on The Art of Financial Planning.
— Jared Friedman Independent Certified Financial Planner in NJ