Starting a new family: helpful steps to be financially prepared
Making the decision to start a family is one of the most exciting and life-changing decisions a couple can make in their lifetime. There is so much to do and prepare before the little one arrives, such as, painting and decorating the nursery, buying baby supplies and making sure the baby has cutest outfits and accessories. It truly is an exciting time, but many couples get caught up in the paint and outfits and forget about some of the essential financial planning priorities. Below are a few things to consider before your bundle of joy is born.
Get life insurance
Life insurance is another topic of discussion that may get overlooked during this exciting time. Likewise, it is also a decision that young parents often get incorrect by underestimating the amount of coverage needed. The reason is frequently because young couples usually do not have sufficient assets to maintain their lifestyle without an income provider. If something unfortunate were to happen, the insurance proceeds could help the family remain in the home, pay for childcare, pay for education expenses, and possibly help their spouse find a job that allows them to spend more time with the children. It is wise to sit down with a highly recommended insurance professional to discuss many options, such as, which type of insurance is needed (permanent or term) and affordability. It is beneficial for both parents to have the appropriate amount of insurance, even if one is a stay at home mom or dad.
Plan for maternity or paternity leave
Most employers offer maternity or paternity leave to help with the transition of the new addition to the family. It is pertinent to understand the length of time and if the leave is paid or unpaid. Some employers will pay a percentage of salary during this time, which can have a significant impact during the first few months after the baby is born. One strategy, if available, could be to defer paternity leave to coincide with the end of paid or unpaid maternity leave. This could enable a couple to have at least one parent with the newborn for a longer period of time prior to the inception of any child care options. The last thing a couple wants to experience is a shortage of income during a big transition. Understanding this benefit ahead of time can help a couple prepare for the possibility of lesser income and higher expenses.
Create a new budget and savings plan
On top of adjusting to a new daily and nightly routine, a couple will also have to adapt to a new budget with recurring costs such as diapers, formula and child care. A couple should research what their out-of-pocket medical costs may be post-delivery. In addition, new parents should understand how they are going to cover these costs with the possibility of the household income decreasing while on maternity/paternity leave. Setting limits on necessary and optional buys can help keep a budget afloat. As this is a daunting and uncertain task, it will help create some level of certainty as to the affordability of the new family’s lifestyle.
Start or assess emergency fund
If there is not an emergency
fund established for a family, the time to start one is today. An emergency fund will help provide a financial cushion if an accident or unexpected event occurs. In general, little ones tend to be accident prone, therefore there’s no telling if the current disposable income is enough to pay for these unplanned expenses. A sufficient emergency fund should cover approximately three to six months worth of living expenses. If there is only
one income for the household, the emergency fund should be closer to the sixmonth figure and if there are two incomes, the fund can be closer to the threemonth figure.
Establish estate planning documents
In this busy time for your growing family, no one likes to think about the future and not being able to provide for their spouse and children. If a couple does not already have estate planning documents, time should be made to immediately address this matter with
an estate planning attorney. Drafting these documents will ensure that everyone is protected if something unexpected were to happen to one or both parents. The essential documents needed are Wills, Power of Attorney, Health Care Power of Attorney and Living Wills. Although it may be difficult to consider your own mortality, having a plan in place is the first of many responsibilities of parenthood.
If you are in need of some help or guidance, meet with a qualified professional insurance specialist and trusted financial
advisor to help prepare and guide you in these important decisions.
Pete Hoover was destined to be a financial advisor. He has always been intrigued by numbers and money matters. They represent captivating puzzles to be analyzed, shaped and fit into place as pictures of financial solidarity. For nearly 40 years, Hoover has tackled those financial puzzles. In 2005, he launched Hoover Financial Advisors, located in Malvern. Hoover can be reached by emailing pete@ hfaplanning.