Making the decision to bring a child into the world and create a family of your own is a major life milestone to be celebrated. With this very exciting step can also come a lot of uncertainty and what-ifs about how to prepare for the coming months and years ahead. Without the proper planning or conversations about the future, it can all start to feel overwhelming or unmanageable. The good news is that whether you are planning to become parents soon or further down the road in your relationship, there are ways to start securing your financial future now to set yourself up for success wherever your life journey takes you.
Build an emergency fund
No matter what stage you’re in when it comes to your relationship or life in general, creating a sound financial foundation for yourself is a wise idea. Although your financial allocation might already be spread thin from paying off your loans, car payments, mortgage, rent, and other monthly bills, it’s important to have a plan for an emergency. Of course, you do need to stay on top of bills and scheduled payments; however, as new parents, it’s especially important to have a financial safety net should something unexpected happen.
This is also smart budgeting practice for individuals and their families. If it takes more than a month to set aside around $500, you might want to take a closer look at your spending habits. A reasonable goal is to have about six months’ worth of financial coverage to pay all your bills and expenses should you have no other source of income for a time. This might seem like a lot initially; however, after facing a worldwide pandemic, you can see how it would be beneficial to have an emergency fund to protect your family in the event of a crisis, job loss, or other outstanding circumstance.
Ensure healthcare coverage
Depending on your profession, it’s possible that you have healthcare coverage and benefits. If you are an entrepreneur, on the other hand, or work for yourself, it’s essential that you have the appropriate coverage for your situation. Talking with your spouse or partner in this case might be helpful to determine if you need separate or additional coverage for your family’s needs. There are various options available to get health insurance as an entrepreneur or if you are self-employed. Getting ready to start a family is a great time to ensure you have the appropriate coverage for the coming months.
Secure a life insurance policy
There are various ways to go about financial planning and investing in your future that will allow for less anxiety should you experience an unanticipated circumstance. It’s recommended that soon-to-be parents or new parents secure a life insurance policy as a way to protect your loved ones, allow for peace of mind in the present, and create financial assurance should you not be around to support your family.
Additionally, life insurance rates increase by about 8% annually, so it’s best to secure financial protection now if you think you’ll have dependents later. Ideally, the best time to shop for life insurance is before you become pregnant or in the earlier months of pregnancy since health complications can arise during pregnancy. But if this is not the case for you, there are still options to help you get affordable rates. Many people misunderstand how much life insurance they need and opt for whatever is available through their work or employer. Experts recommend a death benefit of at least 10–15x your annual income to prevent your family from being underinsured. Often with an employer or group policy, you will not be given this much coverage.
Get in the habit of budgeting
As mentioned, having a clear understanding of your financial situation is extremely critical if you are planning to become parents. Knowing where you stand in terms of monthly income versus expenditure plus additional investments will help you determine if you will need to cut back when the baby comes. Not only does a newborn require all your time and attention, but they also can be expensive. From clothes, food, and supplies to furniture, strollers, and doctor appointments, your finances will certainly be impacted.
Based on your relationship and situation, you and your significant other can decide on a budgeting method that works best for you. Getting into the habit of budgeting your finances before bringing a baby into the picture is a great idea if you are not used to accounting for all your expenses. If you are newer to budgeting for yourself or with your partner, it might be worthwhile to research some of the best budgeting methods as one style might be more naturally suited to your lifestyle. If you feel like budgeting is taking over your life or forcing you to change too much, you might be less likely to stick to it. Finding a sustainable way to manage your finances will help you get started and improve as time goes on without sacrificing more than you are willing to.
Work with a professional
If you are approaching a major life event such as starting a family and you don’t feel confident to organize or prepare your finances on your own, you are not alone. With so much to consider during a time of transition, finances are not something that you want to fall by the wayside. Consider hiring a financial advisor who can help set you up for success and provide you with reassurance that you are making all the right decisions for your situation. Should you decide to change jobs soon, you will want to evaluate your savings and retirement plans, all of which a financial planner can help you sort through.
Plan for retirement
If you do decide to meet with an advisor or professional to assist you in your financial planning process, they will be able to guide you through some of the opportunities available to you, including investing, savings, and retirement options. Most companies will have programs in place to allow for easy contribution into a 401k program or another type of retirement account. If you are an entrepreneur or work for yourself, once again, you will be responsible for setting up the appropriate accounts for future retirement savings. If you or your spouse wants to save for retirement as a stay-at-home parent, you’re going to want to factor in that you won’t have an income for a certain amount of time. Since everyone is unique in their wants and needs, you should discuss some of the finer details with your partner to determine the best path for your lifestyle and financial situation.
Create a college fund
It might feel far off to start planning for your child’s future education before they are even born, but doing so will make a major difference in your financial future if you intend to support them for this experience. Whether you plan to co-sign their loans, cover their expenses, or split the cost of college with them, it’s going to be a large financial investment and commitment. Depending on the school and program they attend, you might be stuck paying off college loans for years after graduation. By starting a college savings account before you have to take on the expenses of having a newborn, you can begin your financial journey ahead of time before life gets busy.
As new parents or parents-to-be, your list of priorities is sure to be extensive. With that being said, having a stable financial situation can allow you to celebrate exciting life events while navigating the challenges that come alongside them. By planning early and having conversations with your significant other about the months and years ahead, you can set yourself up for financial success and peace of mind, allowing you to enjoy these special milestones.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.