Congratulations on becoming new parents! It is indeed a life-altering event- one that comes with many emotional highs! But you will also have to make quite a few decisions- many of which will affect your financial future.
Every choice you make may have long-term consequences! However, getting organized early on will make you feel confident. You will also not feel overwhelmed! And while no amount of planning can prepare you for the unexpected trials life throws your way, a proactive approach to your finances will bring peace of mind.
1. Updating Your Health Insurance
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After your child is born, one of your first money moves should be adding them to your health insurance plan! It is important to note that this step is not automatic, and if you delay it, you may have to incur out-of-pocket expenses. Most insurance providers give you around thirty days after birth to add a newborn to the plan. So, do not wait until those medical bills start piling up. Contact your insurance provider at the earliest!
Also, look at your current plan cover closely! With a child, visits to the pediatrician, immunizations, and emergency care will quickly become part of the expenses. Hence, you must ensure your health insurance helps cover them, or at least most of them.
2. Reevaluating Your Insurance Needs
Becoming a parent means others are now depending on you for income and your ability to earn. This is why insurance is a necessity, particularly life insurance. Term life insurance is usually the cheapest and most practical option for young families. That said, pick a policy that covers long-term requirements, like mortgage payments, childcare, and education expenses.
Another insurance you may want to consider is disability insurance. If an accident or illness takes away your ability to work and provide for the family, this form of coverage may replace your income partially. Even if your job offers basic disability insurance, it may be worth reviewing the details. But do explore additional coverage.
3. Creating a Legally Sound Will
This is not something anyone wants to think about. However, when there are children in the picture, making a will is vital! A will does not just determine how the assets are to be divided- it also names a guardian for your child in case the unthinkable happens. This is important in single-parent households or if both parents pass away suddenly.
4. Updating Your Beneficiaries
Besides the will, take time to update your beneficiaries on all your financial accounts. This would ideally include a retirement plan, your life insurance policy, and investment accounts. If you do not elect beneficiaries, your assets may be tied up in probate. Resultantly, your loved ones may face legal hurdles. Consider consulting with an attorney or a financial advisor in Scottsdale and ensure everything is set up correctly.
5. Formulating a Realistic Budget
With a child in the house, your spending will change. You may find your expenses climbing overnight, with all the diapers, formula, childcare, and doctor visits. This is why you need a clear financial plan!
Firstly, determine your essential expenses and find where your money is going. This will help in finding areas where you can cut back and redirect the funds toward your priorities.
6. Making an Emergency Fund
One financial priority you must determine is an emergency fund. If you have not started one, now is the time! Life with kids tends to be unpredictable, and if you have savings to fall back on, this can make emergencies less stressful. Try to put aside three to six months of living expenses as your emergency fund to have a good enough financial cushion.
However, if this feels out of reach, you can also start with a smaller target. Even a $500 or $1,000 put aside is better than nothing!
7. Investing in the Future
Your child’s future is important, but do not forget your own goals either! Your professional development, mental plus physical well-being, and retirement planning are all important. Think about contributing to retirement accounts through your employer. If it is not available, consider setting up an IRA. When you plan for your future, you can support your child without compromising your long-term financial security.
You can also set up savings for your child. One popular option is the 529 plan. It offers tax advantages for education and can be used for different qualified expenses. You do not need to build it all overnight. Start with what you deem manageable and increase your contribution as the income allows.
Final Thoughts
New parenthood comes with a lot of challenges, and financial responsibility may very well be one of the biggest of those challenges.
You may think the list of your to-dos is pretty long. However, the seven steps mentioned in this post may help bring clarity and control. The sooner you put these tips into action, the easier it may become to focus on what is important to you- your family.
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