Financial Steps Every New Parent Should Take Before the Baby Arrives
Having your first child is one of the most exciting milestones in life. Names get picked. Nurseries get painted. Hospital routes get mapped out. But in the middle of all that preparation, financial planning often gets pushed to the back burner, and that can create real problems once the baby is here.
The costs add up quickly. Healthcare during pregnancy and a hospital stay for childbirth averages close to $19,000. Raising a child to age 18 currently runs over $310,000. Getting ahead of those numbers, even partially, makes a significant difference.
Here are the most important financial steps to take before your due date.
Revisit Your Budget Before the Baby Comes
A baby brings both one-time expenses and ongoing costs you may not have fully accounted for yet. A stroller and car seat are predictable. Childcare, adjusted health coverage, and unpaid leave are bigger budget items that can catch new parents off guard.
Before your due date, try living on your new baby-adjusted budget for a few months. That gives you time to find the gaps before you are also managing a newborn. Set up automatic transfers to savings to cover expected hospital bills and early baby expenses, and build in a cushion for any unpaid time off.
Build an Emergency Fund
Unexpected expenses come with having a child. An emergency room visit, a last-minute childcare gap, or a broken appliance can all hit at once. Having liquid savings set aside gives you the ability to handle those situations without going into debt or liquidating investments.
If you do not have an emergency fund yet, start with a realistic goal, even $1,000 is a meaningful cushion to begin with. Then contribute consistently. Putting aside a portion of a tax refund or a raise, even temporarily, can help you build that reserve faster.
Review Your Benefits and Insurance Coverage
Having a child is a qualifying life event, which means you may be able to update your benefits outside of the standard enrollment window. Contact your HR department as soon as possible to understand your options and deadlines.
Key things to review include:
- Adding your child to your health insurance plan as quickly as possible after birth
- Whether a dependent-care flexible spending account is available to offset childcare costs
- Increasing life insurance and disability insurance coverage now that someone depends on your income
- Whether a health savings account makes sense for your family’s medical expenses
Create a Will and Name a Guardian
This is the step most new parents intend to take but delay longer than they should. A will is not just about distributing assets. For new parents, it is primarily about naming a guardian for your child.
Without a will, a court decides who raises your child if something happens to both parents. That decision may not reflect your wishes. A properly drafted will puts that choice in your hands and makes your intentions legally binding.
Beyond the guardian designation, a will also allows you to establish how any assets left to your child are managed until they reach adulthood. This is an important protection that generic online documents often handle poorly or miss entirely.
Update Your Beneficiaries
Life insurance policies, retirement accounts, and other financial accounts pass to beneficiaries outside of your will. If your beneficiary designations have not been updated since you started your family, now is the time to review both primary and secondary designations across all of your accounts.
Think About Your Child’s Future Savings
A 529 education savings account is worth considering early. Contributions grow tax-advantaged, and the funds can be used for more than a traditional four-year college. Trade school, community college, and apprenticeship programs all qualify. If your child does not use the full balance, unused funds can now be rolled into a Roth IRA under certain conditions. Family members can also contribute directly to a 529, which makes it a practical option for gifts.
Do Not Stop Saving for Retirement
It is tempting to pause retirement contributions when new expenses are piling up. Try to avoid this if at all possible. Time in the market matters more than almost any other factor in retirement savings. At minimum, continue contributing enough to capture any employer match. Stepping back from retirement savings now can have an outsized cost later.
Talk to an Estate Planning Attorney Before the Baby Arrives
A new child changes your financial and legal picture significantly. At Simmons & Schiavo, LLP, Kenneth Simmons and Marco Schiavo work with new and expecting parents to put the right documents in place before they are needed, including wills, guardianship designations, powers of attorney, and more.
Learn more about how we approach estate planning on our estate planning process page, or download our free estate planning guide to get started.
Ready to talk? Call us at 781-675-1315 or visit our contact us page to schedule a consultation.