7 Essential Financial Steps for New Parents to Take
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Having a child can be a mixed ride. While the anticipation, excitement, and exuberance are well celebrated, the fear, anxiety, and uncertainty can be hard to deal with. Life for new parents can be full of hurdles, but having a roadmap can help you overcome most obstacles. One of the primary concerns for new parents is being financially sound. Right from taking care of essentials like food and clothing to taking care of your child’s future medical and education expenses, it all starts with day one.
Here are 7 important financial steps that you, as a new parent, can take before embarking on the journey:
1. Making a New Budget
As a couple or an individual, your expenses can be quite different than what you would have as a parent. People tend to spend most of their money on themselves and towards their individual future needs such as retirement, possessions, debts, etc. However, when you have a child, your expenditure is likely to change drastically. Clothing, food supplies, utilities, baby proofing, the fees of doctors, nannies, etc. are some of the most common expenses borne by new parents. These can make up for a substantial portion of your budget. Hence, if you are planning for a child, expecting one, or have been blessed with one, you may need to readjust some of your regular expenses. It is also advisable to minimize your debt. This can include eliminating the use of credit cards and paying off loans or mortgage as soon as possible. You may also have to let go of many small miscellaneous expenses like dining out, travelling, etc. to accommodate the child. This is a time to focus more on savings and investing in safer tools. The more financially sound you are, the better quality of life you and your children can enjoy.
2. Getting Health Insurance for the Child
When it comes to securing the future of your child, it is incomplete without adequate insurance. Health insurance is crucial for all members of your family, including your child. If you and your partner have a family policy, you can look for an option to include your child in it as well. Most insurance providers allow the choice to add members, based on your changing life events. If you have an employer-sponsored insurance plan, you can do the same there too. There is usually a time limit up to which insurers let you add the child to the existing plan post-birth or adoption. Try to find out these details beforehand to avoid any lapses or delays later. Another vital thing to remember is that health insurance plans can differ for children with a special medical condition. The insurance premium for kids with special needs can also be higher than a standard plan.
3. Updating your Life Insurance
Life insurance is an essential tool to ensure that your loved ones and financial dependents are safeguarded in your absence. However, the cover for life insurance can vary depending on your age, income, and other factors. Most people buy life insurance with lower coverage, with the aim to increase it along the way. In case of an unfortunate event, your older life insurance coverage may not be adequate. So, make sure that you remember to update your plan when you welcome your child. With a new addition to your family, your expenses are sure to increase. The sum assured can be used to cover education expenses, daily requirements, medical costs, professional training or coaching, wedding expenses, etc.
4. Building an Emergency Fund
While having an emergency fund is paramount for all people, the need for it further increases for parents. In the event of a sudden expenditure, an emergency fund can help you cover costs. You could also depend on it if you lose your job, take a sabbatical from work, or suffer from a health condition that forbids you to work for a while. In either of these situations, an emergency fund can ensure that your child’s life remains uninterrupted. Many a time, as a parent, you tend to hold yourself back from chasing dreams like setting up a new business, changing career lanes, or relocating to a new city. An emergency fund can allow you more monetary flexibility if you find yourself at such a crossroad. Financial advisors suggest that you can build up an emergency fund that is sufficient to cover at least 6 to 8 months of your expenses. With such a fund, you can aspire for personal and professional growth, safeguard your family from adversities, and live a more stress-free and peaceful life.
5. Setting Up or Updating a Will
A will is an indispensable part of any parent’s financial plan. If you already have a will in place, make sure to update it as when you have children. If you have not made one yet, it is good to start when you become a parent. A will is a comprehensive document that can be used to secure your child’s life. You can pass on your assets to your children with a will. In the case of minors, it is also crucial to set up a trust to make decisions for the best of their interests in case you are no longer around. Furthermore, it is recommended to cover all grounds, such as appointing a guardian for your children. This person can take care of them till they are adults and handle your estate until it is passed on to its rightful beneficiaries. A will is also extremely necessary if you remarry and adopt your spouse’s children, foster a child, get divorced, or widowed. Make sure to update your will with every major life event, so that it ultimately benefits your children.
6. Saving for their Education
Higher education expenses have worried parents for decades. Leaving the entire burden of school fees to the child in the form of student loans can be hard for them. As a parent, you can share this load by starting early. You can invest in a 529 education plan to save for the future college expenses of your kids. The withdrawals from a 529 plan are tax-free, provided they are used for qualified expenses, such as school fees, tuition, books, supplies, computers, or other course-related equipment. With systematic contributions, you can accumulate a generous amount over the years. Moreover, the rate of return from this account can be used to account for inflation and the rising education costs in the country.
7. Teaching Good Financial Habits
While you make necessary plans and adopt the right strategies to offer your child the best life, it is also important to impart valuable lessons on the use of money from the very beginning. Teaching your kids the value of money, how to save and spend, etc. can ensure that they too lead a comfortable life. You can start with something as simple as helping them draft a plan to spend their pocket money and then proceed on to discussing more significant financial plans with them. For example, it helps to let your kids know that you are saving up in a 529 plan or that you plan to pass on certain assets to them in your will. You can do this as and when you see the right opportunity depending on your child’s age. This brings in discipline, and the child learns crucial financial lessons from their role models.
To sum it up
As a new parent, it is natural for you to want nothing but the best for your children. However, you must remember that parenthood is a dynamic path. Every day, you are bound to learn something new. While the tips mentioned above can help you set the right tone as a parent, you will likely have to revisit your plans time and again. Getting some professional help from financial advisors can also be useful in the long run.