10 pieces of advice financial planners give to new parents who don't know where to start
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- We asked financial planners for their best advice for new parents.
- Their answers ranged from "Don't make any major financial decisions right away" to "automate everything you can.
- They also recommended purchasing a life insurance policy as soon as possible, and making sure you add your child to your health insurance as soon as you can.
- SmartAsset's free tool can help find a financial planner near you »
Becoming a parent comes with a lot of responsibilities, and financial obligations are no exception - from budgeting for everyday needs to forward-thinking about investing in your child's future. To make sure you stay on track with money while taking care of your little ones, yoiu night want to involve an expert: a financial planner who can look at the big picture of your finances and offer strategies and suggestions for your family.
Expecting a baby or just wondering how you can stay on top of your money when you become a parent? Here are some suggestions to consider from financial planners.
1. Update your estate planning documents as soon as possible
It can be uncomfortable to think about writing a will. But if your documents are not up to date, your assets may be distributed in a way outside of your preferences, says financial planner Kayse Kress of Physician Wealth Services. "Worse is if you don't have any written estate documents," she says. "In the case of an untimely death, the state will be the one to decide how and to whom your assets are dispersed."
In addition to your will, Kress says it's important to create or update other planning documents or accounts, including a health care directive, asset distribution and beneficiaries (including the percentage allocated to each beneficiary for every account), and power of attorney.
2. Don't make any major financial decisions right away
Having your first child is exciting, but it's also a big transition. That's why it might be a smart idea to hold off on any significant financial decisions and focus on saving - and adjusting to your new budget - instead.
For example, instead of jumping right into college investments, allow yourself some financial flexibility by keeping extra cash around in case something comes up. "I recommend that new parents hold onto more cash than usual in the first few years as they start to figure out how much extra they are now spending," says financial planner Jake Northrup, founder of Experience Your Wealth.
3. Purchase a life insurance policy
If you don't already have life insurance, now is the time. "Although no parent wants to think about this scenario, it takes very little work to go online and buy a term life insurance policy," says financial planner Taylor Jessee, director of financial planning at Taylor Hoffman Wealth Management.
If both parents work, Jessee says it usually makes sense to buy a bigger policy for the parent who earns more to make up for their lost income. If only one parent works and the other stays home, still consider buying life insurance for the stay-at-home parent to cover childcare expenses.
4. Create a household budget
You probably already know that having a baby can be expensive. Creating a budget for your household is an important way to make sure you don't overspend and that you have the money you need to save for the future.
Daniel Hill, a financial planner and president of D.R. Hill Wealth Strategies, says clients often underestimate the amount of additional money needed for a new child. To assist with that transition, he sits down with them to evaluate their current household budget and then helps them determine extra items that may be needed for a new baby.
"Once this evaluation is complete, I then assist my clients in the redistribution of funds and how they can manage short and long-term goals with these changes," he says.
5. Adjust your emergency savings
Growing your family also means growing your savings. You'll need to bulk up your emergency fund to make sure your entire family and all of your new expenses are covered in unforeseen financial circumstances.
"The amount you should set aside for emergencies will vary by family, but you should start with three to six months' worth of your updated expenses. This means your emergency savings now reflects the cost of having a child or another child versus what you previously saved for," says Brian Walsh, financial planner and manager of financial planning at SoFi.
6. Update your medical insurance to include your child as soon as possible
Your health insurance will likely cover your birth and postpartum stay for the mother and baby, but you'll want to add your little one to your plan as quickly as possible to prevent out-of-pocket expenses for all those pediatrician appointments.
Charles Thomas, a financial planner and founder of Intrepid Eagle Finance, says most medical insurance providers have their own processes for adding a child to health insurance plans, so make sure to contact your carrier to find out what you need to do and how long you have to make the addition.
7. Start thinking about childcare early
If you just recently learned you're expecting, childcare can feel like a distant responsibility. Financial planner Melissa Anne Cox says it's never too early to start thinking about it - and waiting too long can result in excessive expenses.
"Visit a few daycare centers before the baby is born, and get a feel for the environment and ask about waiting lists and enrollment," she says. "I've had a lot of new parents wait until the month before they go back to work, only to find out that centers are full, which often leads to having to pay more than is affordable."
8. Automate everything you can
When you're busy managing life with a baby, you may not have much extra brain capacity for thinking about bills. Financial planner Misty Lynch, head of financial planning at John Hancock, suggests all new parents sign up for automatic bill payments to stay on top of finances amidst the chaos and exhaustion of parenting.
"When I had my first son, I was overwhelmed with all the things I had to do, and since you don't get more space in your brain to take on new tasks, it's easy to let some things fall by the wayside," she says. "I ended up missing a bill payment and my interest rate skyrocketed! Luckily, I called the company and they changed it back to normal, but that took time and energy away from other things I could have been doing."
9. Don't rush to be a first-time homebuyer or upgrade to a larger home
Financial planner Kevin Mahoney says he frequently works with couples who equate being good parents with owning a home that will accommodate their new life as a family. But he often recommends couples wait at least three or four years before making a move.
"Financially, saving for a down payment, moving costs, and new home furnishings often come at the expense of larger student loan payments or early retirement savings," Mahoney says. "Certainly, some couples will need to move to accommodate a newborn, but for most people, they can feel empowered (and relieved!) to wait until they have a better sense for what they want the future to look like."
10. Meet with a financial planner
For even more suggestions on how you and your partner can optimize your financial well-being as parents, financial planner Jordan Benold recommends scheduling an appointment with a Certified Financial Planner, who can help you make sure you're financially set and navigate investments like college and retirement. "When I was a first-time dad, I met with a CFP, and it allowed me to sleep well at night knowing my financial and guardianship interests were fully secure if something bad should happen," he says.
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