By Jed Collins, CFP®
You made it—you walk into your nursery and settle the new addition into the crib after a long 24 hours in the hospital and the safest drive home you’ve ever experienced. But the joy of the first successful car-to-crib transition is quickly overshadowed by the questions that now fly through your head at an alarming pace. Each day will bring a new set of uncertainties, many of which you will be woefully unprepared for, but we’ve put together a list of questions you can address before a cry is ever heard.
Who would be responsible in a worst-case scenario?
It’s never an easy conversation, but now that another heartbeat depends on it, it’s one that must be had. The first response is typically, “My parents.” Ask yourself if they are physically and mentally able to take that on for 20 years. Quickly you move into family members—brothers or sisters, perhaps. Does the person you have in mind enjoy kids? Will they strive to upkeep the values you have instilled? Will they take to heart the notion that you are giving them your everything?
Next, consider your children; will they have to move schools or cities? Will they be around other family? There will always be a financial burden—can the guardian handle a new mouth to feed? Whomever you choose, you should ask them before making it official in a legal document.
What do I want to provide for my child?
Everyone receives the phone call—someone assuring you that life insurance is an investment and the best way to ensure that your loved ones will be taken care of. You have never really seen the point, until now. With a sudden life change, you get clarity on exactly what the reasoning is behind this insurance product. The largest motivators are maintaining a lifestyle, not leaving a family with debt, and what far-off dreams you want to provide for. Typically, the complexity of the insurance product rises with its cost structure. For most, the liability is your future earnings being taken away and as the primary income earner, you need to replace those. A 20- or 30-year term life insurance policy would provide a financial windfall that can support through a transition period and even pay off debts until your family members can stand on their own.
Beginning with the hospital bill and the never-ending pile of diapers, you quickly realize that your budget needs to be updated.
Where will they go when you are not taking care of them?
Every moment is precious, but the reality is you will not be able to be there for all of them. Beginning to play through the plan: will you both return to work? Will you consider a full-time nanny? How and where do you find a babysitter? Every time you are not watching your kids, you most likely will be paying someone to do so—where will that be? One consideration would be to ask your company if they offer any kind of support with this expense through a flexible spending account (FSA). This FSA allows you to contribute pre-tax funds, giving you a tax advantage to help manage these expenses.
When should I start saving for college?
The easy answer is the moment they have a Social Security number. Opening an education savings account such as a 529 as early as possible will reduce the stress of this liability and maximize the benefit of tax-deferred growth. College tuition and associated costs aren’t likely to decline anytime soon and this is an area every parent wants to be able to offer their children, the freedom to pursue their dreams.
To gain the greatest benefit you can ‘front-load’ this account, but setting up a monthly transfer will give you a strategic plan to achieve this goal.
How will this change my budget?
Look around your house. This little ball of joy is not even here yet, but he or she already has more places to sit than you and the largest supply of shoes in history for someone who can’t walk. Beginning with the hospital bill being higher than expected, the hundreds put into the nursery furniture, and the never-ending pile of diapers, you quickly understand the old system needs to be updated. A reasonable place to start would be to add another $1,000 to your monthly budget. You will not be eating out as much, but you will be buying food for a third. Taking a deeper dive, you can begin to measure where you can save and where you can’t.
Nothing fully prepares you for being a parent, but that doesn’t mean you should be totally unprepared. Begin by answering these five questions with a sense of confidence that you can do this.
Do you have specific questions? We’re here to help! Reach out to us today.
Jed Collins, CFP® serves as a relationship manager at Brighton Jones.