One thing they don’t tell you when you become a parent for the first time is the anxiety you suddenly will feel about your financial future. Until now, you knew that you and your partner could fend for yourselves – adding a tiny human to the mix complicates matters and makes you feel as though you are completely unprepared and ignorant about retirement plans, college tuition savings plans, life insurance policies, and on and on. Rather than stress and cry more than your newborn, you need to create a life plan so you can create your life goals and start working to achieve them.
Understand What a Life Plan is All About
A life plan goes beyond a traditional retirement savings account or meetings with a financial advisor. When you create a life plan, you take stock of your current situation, give yourself an honest evaluation of your financial, emotional, and physical health, and then describe your ideal life. This reflection time will give you a handle on where you are now and where you want to be so that when you do meet with a financial advisor, you can articulate your financial situation and future goals. Your financial advisor will then be able to help you create short-term goals that will put you on the path to meeting your life goals.
Whether or not you meet with a financial advisor, you should take this time to reflect on what changes you may need to make in the near or distant future. Adding a child to the mix is a life-changing decision, but in doing so you may have to make some big financial decisions too. What is the best budget-friendly child care in your area? Will a car seat fit safely in your small car? What about location? Your current one-bedroom starter home may be situated near all the best amenities, but it might not be the ideal situation for expanding your family. Meet with a realtor to check out home prices in your area to avoid a cramped and stressful situation when your new family member arrives. Save for these expenses ahead of time to avoid an “oh no” moment.
As a new parent, you may feel overwhelmed thinking about your ultimate life goals. Allow yourself to imagine your ideal life and where you picture yourself, the people you are with, and where you are. You may picture your future grandchildren or your brand new child’s college graduation. The objective is to know where you want to end up so you can start making and sticking to a plan to get you there.
Take Steps to Secure the Future for Your Family
With a newborn in the house, the last thing you want to think about is your untimely death. But, now that you are a parent, you have a responsibility to your family to secure their future should tragedy strike. One of the first steps you should take is writing a will. You need to designate a guardian for your child and an executor of your will who can ensure your wishes are carried out when you die. This is the time to determine what happens to your assets and your property and to set up a trust fund or other financial plan for your child.
Another step that will secure the future of your family is purchasing life insurance. Your financial advisor may be able to assist you in this step, as many financial advisors also sell life insurance. No matter whom you work with, you should consider purchasing enough coverage for 8-12 times your income to ensure the financial security of your family. Remember, your life insurance policy should cover more than your final expenses; you need to consider the amount needed to pay off your mortgage, provide for child care, and help your family maintain their standard of living after you are gone. Consider building a savings nest egg for child-related expenses to be used in preparation for the new child, or to be used as a safety net in case of your untimely demise. You or a guardian may have to purchase a new vehicle or pay for the cost of moving to a new home. A new family member undoubtedly brings new and often unexpected expenses.
Even though your child is a newborn, you need to begin thinking about his or her future. Of course, most parents plan for their children to attend college, and you will need to choose a college savings plan that fits your budget and gives your child a good financial foothold when entering an institute of higher learning. There are several options for new parents who want to start saving for their child’s college education including 529 plans, savings accounts, Roth IRAs, Coverdell Education Savings Accounts (CESAs), CDs and savings bonds, and trusts. Again, a financial advisor will be a helpful resource when you are trying to decide which college tuition savings option is best.
New parents have a great deal on their plate, but life planning should take priority so you can secure your future and that of your new child. Evaluate your current status, determine your life goals, and start working with a financial advisor to help you get there.