Financial Planning Checklist for New Parents

This article appeared first at local parenting blog A Child Grows in Brooklyn.

financial planning checklist for new parentsNew parents are busy.  When it comes to financial planning, they just want to make sure they are doing the right things for them and not missing anything important.  Perfect for this situation: a checklist!

There are eight items on my financial planning checklist for new parents: Positive Cash Flow, Emergency Fund, Debt within Reason, Adequate Insurance, Retirement Savings, Education Savings, Tax Planning and Estate Planning.

Address each of these, and you should have more confidence about your financial future.

Positive Cash Flow

Your expenses are up, and income may be down.  You can expect increases in child care costs (obviously), groceries, medical expenses, clothing and housing if you decide to increase the size of your space.  At the same time, your household income will likely be down if one parent takes extended maternity leave or reduces their work schedule.

This double whammy makes it very difficult to keep your cash flow positive, but the alternative is to accumulate credit card debt and/or spend down your savings.

It’s a good time to start tracking your expenses more closely, to keep your expenses under control and make adjustments where needed.  You can track it yourself with a spreadsheet, or use one of the many websites and apps out there for the purpose.  (I like mint.com, which is free.)

Emergency Fund

Emergencies are suddenly more likely.  With one more dependent person in the household, you are suddenly more likely to have extra expenses for medical needs, real needs like a car seat or stroller, or just an upfront deposit at a daycare or camp.  And those expenses keep coming, even if a parent suddenly loses their source of income.

It’s important to have cash on hand for life’s little emergencies.  How much is enough?  A good start is an extra month’s expenses in your checking account.  After that, 3-6 months of basic expenses is fine for dual-income households, but 8-12 months is prudent for someone who is the sole breadwinner or has a very unstable income.

Automate a monthly transfer to savings if you aren’t there yet.

Debt within Reason

If you have credit card debt, make a plan to pay it off.  It may be motivating to add up what you have paid in interest and fees over time.  Think of what else you could do with that money!

Student loans and mortgage may be worthy investments, but make sure you are making progress on those as well.

Adequate Insurance

It may be time to increase your insurance coverage.  There are three types of insurance you should review: Life, Health and Disability.

Having a child increases your need for life insurance.  Someone is dependent on your income – what if something happens to you?  Even if you have some coverage through your employer, you may want to purchase more.  A common rule of thumb is to have a life insurance benefit equal to five times your salary.

Make sure you understand your health insurance policy as it relates to your new baby.  Are routine visits (“well baby”) to the pediatrician covered?  Is your pediatrician “in-network”?  If you and your partner are both eligible for coverage under an employer-sponsored plan, compare the two to make sure you are getting the best value.

Disability insurance replaces a portion of your income if you are unable to work.  It is generally most cost-effective to buy it through a group plan if it is offered by your employer.  You may want to purchase it independently if you don’t already have it.

Saving for Retirement

Keep saving for retirement, or get started if you haven’t already.  Retirement savings contributions can reduce your taxable income which can of course reduce your taxes.

Save in your company retirement plan if you have one.  If you don’t, start a plan for your business (if you are a freelancer or independent contractor) or, if you are eligible, save in a Traditional IRA or Roth IRA.

Saving for Education

You may want to start saving for your child’s education.  If you can make the room in your budget, why not start now?  I find that setting a small but regular monthly contribution to a college savings account is very effective, and parents are glad they did it.

Tax Planning

Your tax situation may have changed a bit.  You should now be able to claim the Child Tax Credit and an additional exemption.  You might also be eligible for a Dependent Care Credit and/or Adoption Credit.  You shouldn’t need to “do” anything there until tax time.  Consult your tax advisor for more information.

There are a few decisions to be made, however.  You may want to take advantage of certain benefits which may be offered by your employer, such as the Dependent Care Savings Account, Flexible Spending Account, or Healthcare Savings Account.  Read those plan documents from HR!

Estate Planning

It’s time to finally get a will, or update it if you have one already.  If something were to happen to you, you want to make sure there is a guardian for your child (one will be appointed by the courts if you have no will), your assets are distributed as you would like them to be, and an executor has been named for your estate.

It may also make sense to set up a trust.  A trust can help make sure funds are used to benefit your children according to your wishes.  Consult an attorney who specializes in Trusts and Estates.

Conclusion

The items on the list — Positive Cash Flow, Emergency Fund, Debt, Insurance, Retirement, Education Savings, Tax Planning and Estate Planning – are the major categories to consider.  Action steps on each will depend on your individual situation.

Were you able to check every item off the list?  If not, get started or get some financial planning help.

 

This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.

Raymond James and Sara Stanich, CFP®, are not affiliated with and do not endorse, authorize or sponsor any third party websites, their respective sponsors, or user comments found on this or other sites. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

 

 

About Sara Stanich

Sara Stanich, CFP®, CDFA™, works with people who are building their lives – growing a business, raising a family, moving toward personal achievements – to help them build solid financial plans for the future. Have a financial question? CLICK HERE TO ASK SARA!

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