By Patrick J Cloonan, Jr., CFP
Learn more about Patrick on NerdWallet’s Ask an Advisor
I often meet with people who have recently had children, and this spurs them to look at the world a little bit differently. Here are a few items I always suggest new parents consider.
At the least, get a will. Discuss with your significant other who you would want to be the guardian of your child if something happened to both of you. Talk with the person you plan on naming as guardian to make sure they would be willing to accept the responsibility! You don’t need to know all about their finances, but you should consider how inheriting your children will affect the guardian’s financial situation. For example, my sister recently was divorced and claimed bankruptcy. We changed the guardian for our children, only because her situation changed. You should also review beneficiaries on all accounts you have. You may need some sort of trust to make sure the funds are used to benefit your child.
Re-evaluate your life insurance. Do you have enough? Here are some questions I typically ask to determine how much life insurance is needed:
- Do you want to put aside money to help pay for post-secondary education? This could include private education if that’s the parents’ goal as well.
- Do you want to replace lost income if one parent were not around anymore?
- Will you need daycare, and is it important that daycare is taken care of?
- Do you want to make sure your significant other can retire at a reasonable age if something should happen?
- Do you want your debt paid off in the event you passed away? I had a client several years ago who said he didn’t want his wife to get rich if he died, so he refused to buy ANY life insurance. He died suddenly a year later, and she is still working in her mid-60s, with retirement probably several years away.
Talk about helping the children with education expenses. As most people know, colleges and private schools are getting more and more expensive. According to the College Board, the average total cost of public in state tuition is now $22,826, and the average total cost for private colleges is $44,750. Is it your desire to help them with either of these items, and if so, to what degree? What type of school would you like to plan for to help your child?
Evaluate your budget. If both parents work, will you need daycare? Line-item your budget if you need to, and if you have an emergency reserve, make it bigger. If not, start putting money aside. One spouse may stay home temporarily, so plan for the expense if that is what you plan to do. You won’t know how much your monthly expenses will be for a few months after you have the child, so plan beforehand. I typically recommend six months of expenses in a very liquid account, but what your family needs could be more based on your situation.
You will need to review other insurances as well. Cost for health insurance may increase, and you will want to make sure what you have is adequate. You should also review your disability insurance to make sure you are adequately covered.
Last, but not least, apply for vital records as soon as possible. You will want to apply for a birth certificate and a Social Security number. You will need the Social Security number to complete your income taxes.
You are having a child – congratulations! Be smart and start planning before it’s too late!
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Securities and advisory services offered Through FSC Securities Corporation, Member FINRA/SIPC. Additional advisory services offered through Comprehensive Financial Planning, Inc, which is not affiliated with FSC Securities Corporation. This communication is strictly intended for individuals residing in the states of PA, VA, and CT. No offers may be made or accepted from any resident outside the specific states referenced.