One of the biggest decisions you will make is whether or not you want to start a family. There are many things to think about when planning on having a baby and we’re here to get you on the right track when it comes to financial planning with a family in mind. There are the obvious financial purchases you need to think about such as a crib, diapers, and tiny onesies, but we’re here to discuss the big picture financial considerations.
1. Life Insurance
We’re listing this at number one not only because we stress how important life insurance is, but because we also want to be sure you think about purchasing life insurance before you get pregnant. While it’s not impossible to obtain life insurance while pregnant, it will be easier and likely cheaper to buy it beforehand. For more information on how pregnancy can affect buying life insurance, read our post How Does Pregnancy Affect Life Insurance Rates?.
Life insurance is a must-have if you’re having children. If you or your spouse were to die, life insurance will provide a payout to replace lost income. This death benefit can help fund college educations, pay the mortgage, etc. Both parents should consider having life insurance, even if one of you decides to be a stay-at-home parent. Quotacy has an easy quoting tool that allows you to price and apply for coverage online. It just takes a couple of minutes to see how inexpensive this important coverage is.
2. Estate Planning
Who would take care of your child if both you and your spouse were to die? Do you want to leave it up to the state to decide? If not, be sure to draw up a will that states who would be responsible for raising your children should you both pass away. In a will you can also state how you would like your assets distributed and your funeral and burial wishes.
Some additional estate planning considerations to think about are setting up a durable power of attorney, medical power of attorney, and setting up trust accounts. Work with an estate planning lawyer to determine what needs you have and to craft a well-thought-out strategy.
3. Disability Insurance
If you’re not planning on being a stay-at-home parent, consider disability insurance. If you were to become seriously injured and could no longer work for a period of time, your family’s standard of living would likely be affected. Disability insurance (DI) would provide replacement for your lost income.
Sometimes your employer will offer DI coverage through a group plan, but if yours does not or if you don’t think it’s enough coverage contact Quotacy and we can help. While life insurance may be the product we talk about the most, our experienced agents can help you get DI coverage as well. Some of the life insurance companies we work with offer DI so we can get everything done in one fell swoop.
4. College Savings
With college tuition seeming to increase every year, it’s never too soon to start saving for your children’s education. 529 investment plans allow your contributions and earnings to grow tax-free to be used toward tuition, books, room and board. You can also sign up for a college savings program like this one featured on Upromise.com. Essentially, once you sign up you link your credit and debit cards and a portion of what you spend at certain merchants and retailers can be transferred into your college saving account, such as a 529 plan.
5. Dependent Care Benefits
Many employers offer dependent care flexible spending accounts (FSAs) which can help you save money. These programs allow you to defer some of your pre-tax salary to be used for medical bills and day care, among others. What this means is that this setup automatically pulls a certain amount from your pay tax-free and puts it into your flexible spending account. So, you have less income getting taxed and you have funds available for qualified expenses you would typically pay out-of-pocket for. It’s win-win! Most FSAs are “use it or lose it” so be sure to only deduct what you know you will end up using within the year.
In addition to these 5 specific considerations, be sure to adjust your current budget. For example, if you currently have $350 allotted for groceries and $100 for going out to restaurants, you may likely finding yourself changing up those numbers. Items such as baby food, formula, and diapers are going to add up quickly and you may find yourself going out to eat less with an infant in tow anyway. Mint.com is a great website to help you track your expenditures.
Speaking of budgeting, be sure to save up and plan ahead for maternity leave. While it’s legally required for American companies to allow women 12 weeks of maternity leave, nothing requires them to pay their employee during this time. Talk with someone in your Human Resources department to find out what your employer’s policy is and plan accordingly.
Having a baby is an exciting time in your life and while you may never feel 100% prepared, you will feel more confident and relaxed when you cross some of these financial obligations off your list. A stress-free mom is the best kind.