As a new parent, you want to make sure your child and your family's needs are met. One way to ensure this happens – both in the present and for the future – is to create a viable financial plan. The following checklist can help point you in the right direction.
#1: Get Proper Coverage
Most insurances are actually financial products. As a new parent, you need insurances that will cover loss of income because of death, injury, or illness. This way you can ensure that your family's financial quality of life doesn't change. Generally, the primary wage earner should have the most insurance coverage, followed by the secondary wage earner or stay-at-home spouse. Children don't generally need coverage. Life insurance falls into two categories: term and whole. Term insurance requires monthly premium periods and protects you for a predetermined period. There is no savings element. Most financial consultants recommend whole life, because it also acts as a savings account that you can draw upon if necessary.
#2: Plan for the Worst
The next financial step new parents should take is drafting up a will or updating their current will. You want to make sure that your child receives your assets, is cared for, and is raised by the people you choose if something happens to you and your spouse. You may also want to set up a trust at this time. Your financial consultant can help you create an end-of-life financial plan that provides peace of mind during a trying time.
#3: Put Yourself First
Don't make the mistake of some parents and skip your own retirement in lieu of your child's future money needs. After creating a safety net with insurance and end-of-life planning, your retirement savings should be the next big priority. Not only does sufficient retirement savings mean you get to enjoy your golden years, it also prevents you from ever becoming a financial burden on your children.
#4: Make College Plans
The best time to start college savings is when your child is an infant. You may think this is crazy—you don't even know if your child plans to go to college at this point; but setting aside money now ensures you have it later if it is needed. Whether it's a basic college savings account or a 529 plan, your financial consultant can help you choose the best vehicles for your college savings. As a basic rule, plan on saving enough to cover about a third of the expected education cost for your child. The other two-thirds can be covered at the time of schooling by current earnings, scholarships, or financial aid. If your child doesn't go to college or gets a full-ride scholarship, the money can be used for another child, given as a graduation gift, or rolled into your own retirement savings.
Meeting with a financial consultant is the best way to ensure you start off right. Even if your earnings are small, starting now ensures you have a good financial framework in place that will grow as your earnings power increases.