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Starting a New Family? Helpful Steps to be Financially Prepared

Robert DowdMarch 8, 2019

Financial Planning

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 the 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 arrives.

Get Life Insurance

Life insurance is a topic of discussion that may get overlooked during this exciting time. Likewise, it is also a decision that young parents get incorrect by underestimating the amount of coverage needed. The reason being is because young couples usually do not have sufficient assets to maintain their lifestyle without an income provider. If the 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 their 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” parent.

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 it 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 & Savings Plan

On top of adjusting to a new daily and nightly routine, a couple will also have to adjust 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 six-month figure and if there are two incomes, the fund can be closer to the three-month 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.

Starting a new family can be stressful enough, especially when parents may be sleep deprived and exhausted. Getting the financial side of the house in order prior to the new baby can be extremely advantageous and rewarding. If you are in need of some help or guidance, feel free to reach out to our HFA team, we are always willing to help guide you through these important decisions (610-651-2777).

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