A Financial Checklist for New Parents
If you’re expecting the arrival of your first child soon, chances are you’ve got a to-do list that’s a mile long. It probably includes everything from getting the new baby’s room ready and sending out announcement cards to attending birthing classes and staying on top of your pre-natal doctor’s appointments.
But have you thought about how your new arrival is going to affect your family’s finances? Many parents-to-be haven’t, which can be an expensive mistake. Having a child will probably impact your financial situation drastically, so it’s important to plan ahead for how you will adjust to the changes.
Here is a financial checklist for new parents to consider when planning a family:
Carefully examine your health insurance policy.
The maternity coverage offered by health insurance policies varies widely so one of your first priorities should be to find out what is and isn’t covered under your existing policy. Even if your policy covers most costs associated with pregnancy and delivery, you may have some out-of-pocket expenses. It’s better to get a handle on these earlier rather than later so you can factor them into your budget.
Also, make sure you talk to your insurance provider about adding your baby to your health insurance policy as a dependent as soon as possible, so all of their medical expenses are covered. Most insurers allow up to 30 or 60 days from the date of birth to add a new baby to an existing policy, but don’t delay. You want to make sure the baby is covered if there are any serious health problems or complications.
Find out what kind of maternity/paternity leave your employer offers.
Different employers have different policies when it comes to parental leave — some are extremely generous while others expect parents to be back at work quickly. Your employer’s parental leave policy will have a big impact on how you spend the first few weeks and months after your baby’s birth, and possibly on your household budget during this time as well.
This is also a good time for spouses to talk about their long-term career plans after the baby is born. Some couples want one parent to stay home with the child for the first few years (or longer) while others both want to get back to work as quickly as possible. This is a financial and emotional decision that every couple has to make for themselves. Whatever your decision, it will require a lot of advance planning ahead of time.
Create a new budget.
Bringing a baby into your home is going to result in big changes to your household budget. The additional expenses associated with raising a child will probably require you to reassess some of your priorities when it comes to spending, saving and investing your money.
Use your existing budget as a blueprint and start making changes to reflect these new priorities. For example, you’re going to have lots of new expenses like diapers, formula, baby clothes, and childcare. Center-based childcare for infants and toddlers in the US costs a whopping $1,230 a month on average, so you may have to make some lifestyle adjustments to accommodate new costs like this. Also factor in college savings if you want to help pay for your son or daughter’s higher education later down the road.
Reassess your needs for life and disability insurance.
If you don’t currently carry these types of insurance, you might want to look into obtaining coverage. It’s generally a good idea for new parents to carry this kind of coverage so they can continue to provide income for the family if one spouse dies unexpectedly or becomes disabled. If you do have this type of insurance, you might consider increasing your coverage amounts.
So how much coverage do you need? Every family and situation are different, but one rule of thumb is to buy enough insurance to replace a multiple of your annual income, such as 10x. So if you earn $50,000 a year, you would buy $500,000 worth of life insurance. Another approach is to estimate how much money would be required to meet your household expenses for a year and multiply this by the number of years you want to ensure financial support for your family.
Draft a last will and testament or update your will if you have one.
With a child on the way, it’s critical to draft a last will and testament. It might seem morbid and unnecessary as you start a family, but it’s crucial to have things buttoned up to to ensure distribution of your assets and guardianship for your child should a worst-case scenario ever come to pass. If your estate is relatively simple, you might be able to create your own will with the help of a do-it-yourself online will-writing program.
But if you possess assets such as a home, vehicles, investment portfolio, retirement accounts or other valuables, it might be wise to hire an attorney to draft your will for you. Many of our clients consider this money well spent, as it ultimately buys them peace of mind from knowing that their family probably won’t face any legal obstacles when it comes to asset distribution or guardianship upon your death.
Taking the time before your baby is born to plan for these areas will help you be better prepared financially for your new arrival. So don’t delay — talk to your spouse now about all the items on this checklist and how you plan to address them.