Financially Preparing for New Parenthood
The prospect of providing for and raising a child for the first time can overwhelm many soon-to-be parents. Even more overwhelming is the realization of the costs associated with some of the non-negotiables of new parenthood. When expecting a child, it’s important that parents review their finance and budget when preparing for their new role and all the responsibilities it entails.
Budget, Budget, Budget
Balancing budgets before welcoming a child is critical for new parents, as they’ll be immediately met with many new expenses. The best rule of thumb for all financially healthy adults is to have a liquid “emergency fund” that can cover three to six months of bare-bones expenses. Sitting down with a spouse, a family member, or a financial planner can help you figure out what new expenses you should be considering within your monthly baseline budget, including items such as diapers, formula, daycare, doctors’ appointments, and clothing.
There are multiple high-cost short-term expenses to consider while saving and budgeting. Childbirth itself can be expensive in the U.S. depending on your insurance provider, and not all jobs provide guaranteed maternity or paternity leave. In addition, you’ll need to consider long-term costs, such as healthcare, daycare, and college expenses. Click here to check out our eight-point checklist to help you get started on developing an effective financial plan.
Opportunities for Investment
Parents have the option to open a 529 savings plan for their child’s college tuition. This type of account allows you to save on a tax-deferred basis if funds are used for education expenses. Depending on the state, you may also get an income tax deduction when contributing to the account.
While this can be a great opportunity to give your child a leg up on the future, we typically recommend prioritizing retirement savings before a 529. Loans are available for students, but you can’t take out a loan for retirement, and your budget may not allow you to contribute to both. If you want to learn more about effective ways to save for retirement, click here to read about key partnerships that can help you build a successful retirement plan.
New parents should begin estate planning and at the very least have a will and contingency plan for their children, including an appointed guardian. Furthermore, it may be prudent to take out a life insurance policy. If budgeting for such a policy is an issue, there are many affordable options for term insurance that provide pure life insurance for a certain number of years.
New parents may also want to begin thinking about how they will teach their future child healthy financial habits. As we discussed in a previous article, it’s also important to begin educating children early to set them up for financial independence and responsibility. This practice can help ensure that by the time children receive an inheritance, they are fully equipped to effectively manage their finances.
Reviewing Insurance and Benefits Options
Health insurance costs typically change as soon as a first child is added to a policy, so parents should review their policy options to seek insurance plans that are most suited to their needs and their budget. Many organizations also offer different benefits that may assist with your new responsibilities, such as dependent care flexible spending accounts (tax-deferred accounts for childcare expenses), disability insurance, and health savings accounts (tax-deferred accounts for healthcare spending).
If you are expecting a new child and would like assistance reviewing your financial plan, please reach out to our experts at Curi Capital for valued advice and information at 985-202-2800.
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The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein.