One of the most joyful life-changing game and event for a couple’s financial plan is the birth of their very first child. However, you will learn quickly that "kids ain't cheap!" In this article, we will give you my suggestions for great money moves for first-time parents like yourselves.
Saving and Budgeting
First, when starting to prepare for your baby expenses which certainly are inevitable, you’ll need to evaluate what your monthly budget looks like as at now. You need to perform what we call cash flow analysis which helps you break down your monthly income, your fixed and variable expenses and your monthly savings. You need to identify some areas where you can reduce costs and increase your savings. We highly recommend you start a baby savings fund which will help you set aside some good amount of money for your daily expenses like daycare and diapers and also one-time expenses such as a crib and stroller.
529 College Savings Plan
Having a college fund to put your baby through college is extremely is extremely important and many parents have beginning to embrace it. It is therefore highly recommended also to start saving into a 529 college savings plan. Opening a 529 account for your child will help you retain a total control of the money. The growth of a 529 account is always federal and state tax-free for college when used for higher education purpose. If your kid is fortunate to receive a scholarship, the funds can be transferred to assist other kids. The cost of acquiring a higher education is one of the biggest expenses of life. Therefore, getting a savings plan early can help you keep away from spending out of your retirement funds.
The importance of Life Insurance cannot be overstressed. This will eventually ensure that if an unexpected event befalls you or your spouse, your kids still have the hope of surviving.
What will happen if you were no longer around to protect your spouse? These are questions you need to ask yourself and certainly having a life insurance is the best way to think about such events. There are a number of life insurance options available varying from cash value policies to term life policies. We recommend young parents on a budget consider life insurance policies that are affordable. Obviously, you want them to be good enough to take care of their family’s financial needs when the need arises, but they have to be affordable. Don't buy into insurance agents hype. Be knowledgeable about your needs.
In our experience with clients, we noticed most don’t like the idea of their child receiving all of their assets by the time they are 18-years-old in a huge sum if they die prematurely. They prefer the idea of a living trust which allows them total control of the timing and distributions. Most also want one-third of their assets transferred at age 25, 30 and 35. The idea of spreading their inheritance out this way is much more appealing. It also reduces the chances of the child spending it all at once.
Your Own Retirement
Sometimes, it’s challenging to remain on your current financial and investment plan. As you begin to add more children try to avoid the mistake of only focusing your finances around your children at the expense of your own retirement savings plan. We usually advise people that the very best way to take care of your kids is to first, take good care of yourself. You need to be there for your kids, be a great financial role model to them, let them know how you are saving and preparing them for the future. Start now, wait no longer so that you and your family will have a better retirement future.
As a CERTIFIED FINANCIAL ADVISOR™ these are the five things that you must do at this phase in this phase of life based on my years of education and experience.