Financial planning can seem like a relatively easy game if you manage to receive a respectable paycheck and save a little for retirement.
Of course, that all changes with your first child’s arrival. First-time parents usually have a long list of things to buy and prepare until they fine-tune their financial priorities.
To ensure that you stay on budget, you may want to consider using a financial advisor who can provide your family with plans and suggestions. Here are some essential financial tips that all first-time parents should learn.
Update Your Estate Planning Documents
The thought of writing a will can be uncomfortable but it is very important when you become a parent.
If your records aren’t up to date your assets may be allocated outside your wishes, according to financial planner Kayse Kress of Physician Wealth Services.
In addition to the will, Kress says that it is necessary to establish or amend other financial documents including a Health Care Directive, allocation of assets and recipients, and attorney power.
When you become a parent for the first time, you will notice that expenses pile up for things like diapers, baby food, and pediatric appointments.
That’s why it is more important than ever to have a budget and to stick to it.
New expenses come with a new child. The USDA estimates that $10,000-$34,000 will be spent on raising a child annually.
In addition to both prenatal and postnatal medical expenses, baby clothes, diapers, food, and other childcare expenses can add up quickly.
Some costs such as diapers and new toys are ongoing, while car seats and strollers are usually a one-time expenditure.
It would be beneficial to consider which items will be a temporary hit to your wallet, and which recurring costs would have a long-term effect on your budget.
Apps like Mint will help make this exercise as painless as possible.
Adjust Your Emergency Funds
Growing your family means increasing your savings too.
To ensure that your whole family is covered in unexpected financial situations, you’ll need to top up your emergency fund.
The sum you will set aside for emergencies can vary by family, but your revised expenses will start with three to six months’ worth.
Prioritize Insurance Above All Else
Adequate health insurance is crucial, but you will also want to take out life and disability insurance too.
Life insurance can help protect your growing family by ensuring that financial services are available to them if you’re no longer around.
Disability insurance may also be a significant aid if a debilitating illness or accident causes both parents to become disabled. If you have employer-provided disability insurance, make sure it would be adequate for a reasonable period to cover essential expenses such as a mortgage, debt, childcare, and household expenses.
Instead of providing more personalized coverage for your needs, you may want to consider supplementing your current coverage with an individual policy or a different system.
Prepare Your Retirement Plan
If you have to choose between college savings and retirement savings, always choose retirement.
Your child may have more than one way to pay for college including scholarships, loans, and grants.
It’s good to take care of your child’s education, but not if it means potentially burdening them financially to care for you in the future.
Start Saving Up For Your Child’s College
By the time a born child packs his/her bags for college, four years of tuition and fees are projected to be roughly $119,000 at a public university (in-state resident).
The faster you start investing, the better off you are going to be.
For example, if you start investing $500 a month for college savings at birth at a rate of 6 percent, the total will be about $191,000 by the time your child reaches age 18.
When you delay investing until your child hits the age of 10, the final balance will be about $61,000.
It probably goes without saying but if you are in debt, do whatever you can to pay it off before your baby arrives.
Monthly payments for student loans, high-interest credit cards, and personal loans can compress a household budget particularly when you have a whole new category of expenses such as baby clothes, food, and diapers.