Planning financially for a child should begin when you first start discussing having children. New parents are often overwhelmed with the demands of caring for a new baby once it's been born. However, making sure all of the legal and financial issues are addressed and taken care of properly will help you accomplish your future financial goals.
Financial Planning Before the Baby Is Born
Once the baby is born, there will be so much to do. Taking these steps before your bundle of joy arrives can reduce the stress that will undoubtedly arise afterward.
It is important for new parents to set goals such as purchasing a house, saving for retirement and planning for their child’s college education, for example. Once these goals are set, prioritize them to make them more attainable.
The next step is to create a budget to understand where the money goes each month. After a new baby, additional expenditures will arise: diapers, formula, furniture and clothing. Adding these expenses into one’s budget allow ample funding for them while simultaneously working to achieve long-term financial goals.
It is also critical to have a cash reserve in case an emergency arises. Ideally, this cushion should be increased before the baby arrives to account for the additional expenses. (For related reading, see: 7 Ways to Save for an Emergency Fund.)
Finally, each parent should obtain a life insurance policy to provide financial stability in case of tragedy. Life insurance will be crucial in helping the surviving parent take care of the child and himself or herself.
After the Baby's Arrival
After the baby’s arrival, new parents should obtain a Social Security number for their newborn. If the hospital doesn't automatically provide the requisite paperwork, parents should request the proper forms as soon as possible.
Another immediate concern is for new parents to double-check and adjust their health insurance plan to cover the family’s new medical and healthcare needs. Most insurance plans require the new baby to be added within 30 days of birth.
it is critical to create an estate plan in case a tragedy befalls one or both parents. Without guardianship documentation, should a child become an orphan, the court is generally tasked with determining where to place the child. There is no automatic presumption a child would go to a family member. Therefore, it is important for parents to execute a will providing for the care of the child should the unimaginable occur. Another recommendation is to set up a trust, especially if the family has considerable assets. Thus, if anything were to happen to one or both parents, the assets won’t be tied up in probate court.
Planning for the Future of Your Baby
Most parents look toward college education while their child is still young. With the myriad tax-advantaged college savings plans on the market today, it is easy—and recommended—to begin saving early. However, it is also critical for new parents balance their future retirement needs with college savings. Some experts claim while there are other financial options for college—such as scholarships, grants and loans—the same doesn’t apply to retirement. Thus, investing in retirement should take priority, especially when funds are tight.
Be Prepared, Emotionally and Financially
Raising a child comes with staggering costs. From medical care to childcare to daily items including clothing, food, education and beyond—having a baby is certainly life-changing. It is crucial that new parents are prepared not only emotionally, but also financially.