I’ve been thinking about a newborns recently and the need for a new baby financial checklist. These ruminations couldn’t be more timely. According to the Centers for Disease Control and Prevention, July and August have more births than other months. Cold winter months must lend themselves to romance!
If you’ve recently become a parent (or a repeat parent), you may want to do the following five items.
1. Update your Will
A will is especially important for parents of minor children for two purposes:
- Who will raise your child should you and your spouse pass before your child is an adult?
Guardianship is a super important topic for new parents. You’ll want to specify this person or persons in your will. Often a potential guardian is another family member or close friend who shares your values in child rearing.
- How do you want your life insurance proceeds to be handled should you pass?
Often the guardian will have discretion to disburse life insurance funds for the health, education, maintenance and support of the minor child.
But what happens when your child turns age 18? Do you want your child to have the remaining life insurance dollars or do you want to set another age? Say 21 or 25?
I’ve seen parents set up disbursement schedules that “vest” the money with the child gradually from age 21 through 40. These are important decisions that require thought and discussion.
2. Increase Your Life Insurance Coverage
Review your life insurance coverage. Additional life insurance should pay for your increased living expenses and your child’s education.
This additional life insurance is on top of the life insurance you hopefully already have to cover your lost earning, lost savings, and debt payoff (e.g., mortgage debt). See this discussion on how to assess your life insurance needs.
This additional coverage should generally be through term insurance. Only in specific circumstances should you consider whole life insurance.
Remember to update your policy beneficiary(ies). Minor children are often secondary beneficiaries behind your spouse.
3. Get a Social Security Number for Your Child
You’ll need to get a Social Security number for your child to:
- Open a bank account;
- Start a College Savings Plan;
- Buy savings bonds or other investments;
- Get medical coverage; or
- Apply for government services.
You can use this link to get the Social Security number.
4. Begin (or Continue) Day Care Discussions
One of the biggest discussions will be how to handle your child’s care before she/he starts pre-K. There may be a stay-at-home parent or a willing family member to help with care.
In other circumstances, you may need to search for day care options. The key here will be to make sure you can afford the day care option.
You may want to consider a dependent care Flexible Spending Account (FSA) if your employer offers one. Dollars in an FSA often are a better deal than the child care tax credit.
5. Contribute to Your Child’s College Savings Plan
This action item is listed last for a reason. Only consider putting money into a college savings plan if you have maxed out on your 401k contribution and your own Individual Retirement Account (IRA). Every working individual is entitled to both of these retirement savings vehicles.
If you have maxed out on both, make a 529 college savings plan contribution. 529 contributions are tax deductible for state, not federal, income tax purposes.
Your retirement comes first. You can’t take a loan for retirement expenses but you can for a college education.
In sum, use these five new baby financial checklist tips and you’ll hopefully not worry as much about your newborn!