You’ve seen the numbers, and there’s no getting around it. Having a baby is expensive. But like any other major life change, planning ahead will make the process a lot easier.
We’ve put together some key financial tips and consideration for new parents. While this list is by no means complete, it can serve as a starting point to keep your financial life in check during those first few crazy months of parenthood:
- Get life insurance – Once you become a parent, having life insurance is absolutely critical. After all – if something were to happen to you or your partner, you have to make sure your dependents will be provided for. As a general rule of thumb, we recommend people get insurance for five times their earning, plus the total amount of their household debt and enough to cover college tuition for their children.
- Get disability insurance – Just like life insurance, disability insurance is very important once you have children. Take an honest look at your family’s spending to figure out how much coverage you should have. Then, find a policy that would enable you to cover expenses and maintain your standard of living if you had to be out of work because of an injury for a while.
- Set up a college savings plan* – It’s never too early to start saving. Many families flock to 529 college plans to save for their children’s college education. A 529 plan allows you to set aside money for your child’s education and let it grow tax-free. The federal government won’t tax your money when you take it out of the account, as long as it’s used for higher education. And what’s best is that anyone can contribute to it.
- Write your will – Putting together a will is a pretty morbid thought. But if you have a child, a will is essential to designate guardians. We recommend you hire an attorney to draft a will in which you name an executor who would pay your debts and distribute your assets and a guardian for your child(ren).
- Continue paying off your debt – As your expenses go up, it will become harder to pay off debts. Re-examine your current debts and establish a plan for paying them off. While it’s not necessary to pay off every cent of debt before a baby arrives, paying off as much as possible will help relieve stress later.
- Apply for a Social Security number – To take advantage of tax benefits to parents with dependent children you will need to apply for a Social Security number for your child as soon as possible. A Social Security number is also required to open a bank or investment account for your child.
- Lead by example – Your children will learn their most valuable lessons about money from you. According to recent research, parents can start talking to children about money by age three. Between four and five, you can explain the importance of good spending habits, and by age six or seven, you can help children open a bank savings account. By the time children reach their mid-teens, they should start seeking after-school and summer employment. Also, set a healthy example regarding credit/debt. Pay your bills on time. Establish a budget and a savings plan.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate to you, consult your financial advisor prior to investing.
Securities and Insurance products offered through LPL Financial and its affiliates member FINRA/SIPC. MidWestOne Bank is not a registered broker/dealer and is not affiliated with LPL Financial.
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