Congratulations—there’s nothing like a new baby to bring excitement and joy to your family. However, now you’ve got some preparation to do, and it’s not just decorating the nursery.
Preparing for a new addition to the family includes a wide range of lifestyle and financial decisions, says a recent article from Prince William Living, “Baby on the Way? Here’s How You Can Prepare Financially.” These guidelines will get you started, as you begin this new chapter in your family’s life.
Examine your career. A new baby may cause you to think differently about your career goals—you may seek a promotion, a job with a higher salary or better benefits, or more education. Perhaps you or your spouse want to decrease your hours or become a stay-at-home parent. If you are thinking about changing your job status, examine the effect it may have on your take-home pay, retirement nest egg and benefits.
Lifestyle changes. Look at how your baby will affect your day-to-day activities. If your perfect lifestyle involves a new car or home, talk to a financial professional about whether to make the move now or in the future.
Childcare expenses. Nearly one-third of parents spend 20% or more of their income on childcare. In some states, the cost for a year of care can be more than one year of college!
Tuition. Private elementary or secondary school often costs money, and the price of a college education continues to rise at a pace faster than inflation. The 2017 tax reform expanded the use of 529 plans, so you can now withdraw up to $10,000 federal income tax-free per beneficiary, per year to pay for kindergarten through 12th grade tuition at a public, private or religious school.
Review your financial position. Unanticipated events can impact your finances at any time. Resolve to build or maintain an emergency fund that could cover three to six months of expenses. You should also prioritize your retirement savings. After your baby arrives, update your estate plan and insurance coverage as needed.
Consider family values. Consider how you want to teach your child about financial responsibility. Being intentional early, can help create clear expectations and ensure that you and your spouse are on the same page.
The family bucket list. Look at what activities matter to you and add them into your financial plan. Taking an annual vacation or having a vacation home are common goals for many families.
One last and very important thing: a growing family needs an estate plan that includes naming a guardian, should something unexpected happen to you and your spouse. If there is no will, or the will does not include a guardian, the court will decide, under your state’s laws, who should raise your children. An estate planning attorney can help you and your partner make sure that your family is protected. Contact the Soto Law Firm today to sit down for a free consultation to discuss your family's estate plan.
Reference: Prince William Living (December 2018) “Baby on the Way? Here’s How You Can Prepare Financially”