The first few months of parenting are a bit of a whirlwind, to say the least. But in between the diaper changes and the middle-of-the-night feedings, there’s something else you should prioritize: a meeting with your financial planner to go over a handful of baby-related money tweaks that need to be made. Like what? We checked in with Priya Malani, founder of the financial planning firm Stash Wealth, to get her input on the questions new parents should ask.
“Do I need to adjust my life insurance?”
If you’re having or recently had a baby, it’s a great idea to get life insurance because someone is officially dependent on your income, Malani explains. While you might be offered coverage through your employer, if you lose or change your job, that insurance isn’t usually portable (in other words, you can’t take it with you) and it tends to be more expensive than getting a private policy. Having a child is a good time to consider private life insurance coverage. There are many calculators online to help you figure out how much you might need—or you can call an insurance agent who will be able to help you dial in on the right amount of coverage as well.
“What about disability?”
Disability insurance is definitely important, but it’s also very expensive. It’s also likely you’re provided short-term disability through your job. (Definitely look into this before exploring other options once you’ve had a kid, Malani says.) For more comprehensive coverage, you’ll need to weigh the cost against your own personal desire to take on the risk that if something happens to you and you can’t work for some time, how will you pay your bills? Do you have family close by that could step in and help? Finally, do you have a high- or low-risk job? Answering these questions will help you decide if the cost of disability coverage is a worthwhile investment for you.
“Should I set up a will?”
This is something you should take care of when you’re expecting, but if you wait until after baby arrives, talk about it with your financial planner ASAP. Here’s why: Your will allows you to name guardians for your child, God forbid something should ever happen to you. (Guardianship is different from godparents, FYI.) It also dictates how your assets will be transferred and to whom. When you bring up the will with your planner, this is also a great time to work to update beneficiaries on your retirement accounts—401(k)s, IRAs, etc. (Keep in mind your child will need to have a social security number for this to take effect.)
“How’s my emergency fund looking?”
According to Malani, you’ll want to take a minute with your financial planner to analyze the changes to your fixed expenses once the baby arrives. Are you going to be paying for daycare? More doctor appointments? Try to estimate these costs and make sure your emergency fund covers three months’ worth of your fixed expenses. As for your flexible expenses? Great news: These actually tend to go down a bit once baby arrives. (RIP, eating out and traveling as frequently as you did pre-kid.)
“Any advice on budgeting for basics?”
In a perfect world, this question comes up about 12 months before baby’s expected arrival—i.e., when you and your partner are first toying with the prospect of having kids. This way, you have time to set up something Malani likes to call a “baby fund,” which is basically a savings account at an online bank that’s earmarked for future expenses related to having kids. The more time you can give yourself to plan for unexpected costs, the better, but even automating $25 a week after the baby arrives can help you start padding a “miscellaneous” account of sorts for the inevitable expenses that do come up. (We’re talking to you, toys and adorable baby clothes.)
“What about big picture expenses like child care? How should I adjust my budget?”
No matter what your long-term child care plans are, it’s never a bad idea to use the arrival of a child to take inventory of your monthly expenditures to see what’s left over, if anything, and start setting money aside. Research the cost of your options, whether it’s day care, a nanny or even a nanny share. Once you have a sense of what the expense will be, you can work with your financial planner to budget and start automating saving.
“Any tax breaks I should be thinking about?”
Even if it’s not tax season yet, it’s good to keep any rebates—or write-offs—top of mind right out of the gate. For example, in 2018, new parents likely qualified for the Child Tax Credit, currently $2,000 per dependent. (Note: This phases out as your income increases.) If you’re single, having a child may allow you to file as Head of Household, something that provides a larger standard deduction and has the potential to land you in a lower tax bracket.
“Should I open a 529 for college?”
This is a personal decision, explains Malani, but one that you should discuss with your financial planner so you can weigh all of your options. Not everyone contributes to college savings for their children. But if it’s something you’d like to do, a 529 can be a great decision. For one thing, it’s tax-free (as long as you use the funds for education). It’s also tax-advantageous if you live in one of the states that offer incentives for contributing. That said, it’s not something you necessarily have to do in year one—but if family and friends are sending cash gifts to the baby, it’s a nice way to put them to use in the early days. (Just keep in mind that these funds can only be used for higher education and there is a penalty if you take money out and put it toward something else.)