Congratulations! You’ve got a little bundle of joy on the way and are through the moon with excitement, as you well should be. Sometime after the adrenaline wears off you’ll slowly start to be overtaken with fear about your new responsibilities for that helpless little creature.
Here are some things to think about so that you can provide a solid financial footing for your family.
1. Understand your spending habits.
The things you spend money on are likely to change pretty dramatically in the early days and years of your child’s life, so actively getting involved with your spending and tracking where it is going is the critical first step. Use a tool like Mint.com to automate the tracking process, and review your spending each week to leaner what’s working for you and what’s tripping you up.
2. Review your employer benefits.
If you have benefits at work, you should review them to know how much you should expect to spend for the birth of your child (with hospital deductibles, etc) and how to add them to your benefits for health insurance and other programs such as family life insurance. While you’re speaking to HR anyway, check your beneficiaries on your retirement plans and life insurance to make sure they’re listed properly.
3. Life Insurance.
Chances are you need more life insurance than is offered from your employer. Term Life insurance is fairly inexpensive if you’re in good health, so request quotes from a local independent insurance agent (or one of the many online services) and choose the one that makes sense for you. One note here is that you likely only need insurance to cover your family during your child’s growing years, so avoid expensive permanent life insurance products like Whole Life or Universal Life unless you have a solid additional reason for purchasing these. These policies have benefits, but they also have huge conflicts and commissions that come along with them and are rarely as beneficial as they’re made out to be (or as Dave Ramsey says, they’re the ‘Payday Loans of the middle class’).
Now that you’ve got a child, it’s up to you to decide who will get to take care of them if you get run over by a Mardi Gras float. Going to a lawyer who prepares estate documents should get you a Will (which governs your possessions and can be used to designate guardians for your children), a Living Will (which spells out your end of life choices if you’re on life support with physicians concluding you have no chance of recovery) and Powers of Attorney (which gives your partner rights to make medical and financial decisions for you if you’re not capable of making them yourself). When you have minor children, you should really take the time to choose who will take care of them if the unthinkable happens. Don’t leave it up to your remaining friends and family members to try to decide. State your wishes and let a professional help you.
5. Fund your retirement before you fund college
As a parent myself, I understand the inclination to want to do for your child before you take care of yourself, but this is dangerous and costly as you approach retirement. As I tell clients, they make college loans, they don’t make retirement loans. Unless you want to plan to live with your children when they are adults, you’ve got to do a good job of taking care of your own retirement savings before you look at setting aside large sums of money for college. Part of saving for retirement can be funding Roth IRAs which provide powerful tax-deferred growth and potentially tax-free withdrawals in retirement, that can also be used for paying for college if you get to that point and are in good shape from a savings standpoint.
Take care of these 5 areas, and you’ll be well on your road to a successful financial future for you and your family!