8 Planning Tips for New Parents
Friends – Welcoming a new baby is one of the happiest occasions many of us will ever experience. It also brings with it a huge number of financial planning implications.
This is a topic that is near to my heart having recently gone through it twice in a quick 18 month succession. It is also one of the most frequent conversations I have with younger clients. So, after going through these points dozens of times over the years, I wanted to write down the most common advice I share with clients. Whether you’re currently expecting or already have a house full of little ones – I highly recommend every parent review each of the items on this list.
- Build a Base – To stay on track through the experience, get ahead by planning in advance. Do everything you can to pay down high-interest debt, build a cash reserve and focus on good habits of saving and investing toward your own long-term goals.
- Understand Your Benefits Through Work – This is huge. And often complicated. Do your research into each parent’s employer’s benefits including paid or unpaid maternity / paternity leave, insurance options / costs, etc. Options like dependent care flexible spending accounts and health savings accounts can offer significant tax breaks.
- Develop Your Budget – Babies are expensive. If you don’t have a sense of your current expenses, figure out your baseline budget to start. From there, begin to build your baby budget in two parts.
First, consider the costs leading up to and immediately after the birth, including:
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- Medical bills associated with pregnancy and delivery. Especially if you have a high-deductible health plan. If your pregnancy stretches over two calendar years that could potentially mean two deductibles to cover. Even birthing classes carry a cost. There’s a great article on this topic here.
- Lost income from any unpaid time off after the birth.
- Whether it’s nursery furniture, strollers, car seats, clothes, etc., there’s a lot you need and a wide range of prices. When shopping or building your registry, try to stay within your budget and avoid the temptation to stretch for the best of everything.
TIP: Fortunately, you’ll likely receive a number of gifts and hand-me-downs from friends and relatives. There is also a fairly active market to buy used or re-sell more durable items once you outgrow them.
Second, think through new, ongoing expenses. These can include, but are certainly not limited to:
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- A new home or car for more space.
- Either parent working less or leaving work entirely.
- Childcare if needed (prepare for sticker shock when shopping around).
- Increased health insurance premiums (don’t forget to add your baby to your insurance within the first 30 days).
- Insurance deductibles for inevitable doctor visits.
- Increased costs from life insurance and long-term disability insurance (see below).
- Beginning to save for college (see below).
- Daily items like diapers, wipes, formula,
TIP: If you will need a daycare, start looking early and get on waiting lists as soon as possible. It’s not uncommon for high-demand locations to have waiting lists of up to 2 years.
TIP: Adding up all your new expenses can be overwhelming. The good news is, you’ll likely be saving money in other areas. The lifestyle shift that comes with having a newborn generally means you won’t be going out or traveling as much, at least very early on, so the money saved in one area can help offset new expenses. There are also tax credits from having dependents that provide some relief.
- Review Your Insurance Coverage – Beyond caring for your new baby on a day-to-day basis, it is now your responsibility to ensure their wellbeing into the future. This means planning for the worst. Making sure you have appropriate life insurance and long-term disability insurance to protect against the unforeseen is essential.
- Complete Your Estate Planning – Everyone should have a will, but once you become a parent having your documents prepared is critical, especially to name guardians for your children should something happen to you. Finally, be sure to update beneficiary designations on any retirement accounts, insurance policies, etc. to include your children as appropriate.
- Save For College – Most new parents want to start saving for their child’s education in some way. In Florida this can mean deciding between a 529 plan, Florida Prepaid or some combination of both. These are involved conversations, but this is typically an area where I advise patience. You have 18 years to save for college, and while I always recommend starting early, I caution new parents to avoid overcommitting given all the other new expenses they’re experiencing, even if it’s just for a few months to let the dust settle.
- Stay on Track – Many new parents will see their savings rate decline when they first have kids, this is normal and OK, but it is important for your own long-term financial success to prioritize getting back on track as soon as possible.
- Maintain Perspective – Having kids can be tough at times, but it’s also one of the most rewarding experiences any of us will ever go through. One of my favorite quotes about having kids is “The days are long but the years are short.” I’ve found this to be remarkably true and helpful to reflect back on whenever everything above starts to feel overwhelming. Enjoy every moment.
If you or anyone else you know would benefit from talking through this list, please don’t hesitate to reach out. I’m always happy to help.
Any opinions are those of Cameron Diehl and not necessarily those of Raymond James & Associates or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
