Your child's birth is one of your life's most exciting and joyful moments. However, preparing financially for the arrival of your newborn can be daunting. If you work through these five financial planning steps, you'll rest easy knowing that your baby is financially secure.
Identify Your Financial Goals
Before you can make a plan, you need to know what your financial goals are. Some may be short-term, such as building a college fund or saving enough money to pay off your credit card debt.
Others might be long-term, such as establishing an emergency fund or leaving an inheritance for future generations. Identifying your financial goals will help inform how much you need to save and how aggressively you should invest.
Make a Budget and Track Spending
Unsurprisingly, a significant financial concern is keeping costs down when you have a newborn. A baby can quickly increase your expenses.
Whether using cloth diapers or buying name-brand items, making a budget and tracking spending will help keep your expenses under control. Consider what you need and make sure to stick to necessities only.
Create an Emergency Fund
Saving money is essential, but emergency funds are vital. Emergencies happen when you least expect them, and most of us don't have an endless supply of cash in our savings accounts.
An emergency fund helps cover unexpected expenses that can be tough to pay off on your own if they hit while you're living paycheck-to-paycheck. Consider setting up automatic transfers from each paycheck. That way, it doesn't feel like you're working extra hard to save.
Get Life Insurance
Buying life insurance may seem like a big financial commitment, but it's essential. You'll want to ensure your child is financially provided for in case something happens to you. When purchasing life insurance, consider how much coverage you need to cover any potential expenses.
Open a 529 Plan
You might want to open a 529 plan for many reasons, including financial aid opportunities and available grants/scholarships. With a 529 plan, you can invest money on behalf of your new baby to help pay for their future education expenses.
This way, you won't have to borrow when your child is ready to go to college.
Some of the most frequently asked questions by new parents include:
Should you set up a retirement account for a newborn/child?
Yes, with tax benefits and employer matching programs, there's no reason not to do so.
Do savings bonds still make sense to buy for children?
Yes, savings bonds are a great way to teach your child about money and help them build up their emergency fund as they age.
Should you buy stocks for kiddos to inherit?
Stocks are a high-risk investment. We recommend against buying them with your child's inheritance in mind.
When it comes to your newborn's financial future, you should start thinking about these steps now. By planning and getting started on time, you ensure that your child will have financial security when they need it most.