This week has been a bit of a dichotomy for me as I sit hear pondering Dad’s Day and everything I have been blessed with. In the last week and half, I have been fortunate and blessed, as a Father, to see my two lads (22 and 26) graduate from College and University respectfully and begin the next phase in their lives. I’m one proud papa for sure
Turn a page. Next week, we are delivering a new life insurance policy to two clients who are brand new parents having been blessed with a sweet new baby boy.
This got me reflecting on where time has gone and how we all need to be thankful for where we are and where we’ve been. It also started me thinking about what financial advice I provide to clients as new parents. Believe me there is more then just the textbook and online information. Much of it has been gained through my own personal experiences, successes, and mistakes.
As a new parent, you’ve got a lot on your plate. Diaper changes. Late nights. Early mornings. Feeding schedules. Nap schedules. At least a few moments where you feel like you don’t know what the heck you’re doing.
A new baby can drastically alter your family’s financial status. You may suddenly be living on a lower income, if one spouse works less or not at all. And you definitely have more expenses, including costly baby gear and possibly childcare. Oh, and there are a few new financial responsibilities as well.
You already have plenty of new things to figure out, and I don’t want the financial stuff to be part of the confusion. I want it to be as easy as possible for you to not only know which financial tasks are important, but how to do them. So, here are the financial considerations a new parent should be aware of and advice on how to take them. If you can handle these, you can rest easy knowing your family is in good financial shape.
How will we afford a child?
Children are expensive, but most families find a way to make their finances work. One plus: As a new parent, you’ll be spending more time at home, and that can automatically cut your expenses considerably.
Can we afford child care?
Childcare can be very expensive. Shop around and consider the costs of different types of care – centres, home providers, and nannies are the big three. But money isn’t the only consideration. You’ll need to weigh financial costs against your childcare needs and philosophy before deciding.
Can I afford to stay home?
The only way to know for sure is to look long and hard at your family’s income and expenses and weigh them against the average cost of childcare in your area. As you consider your finances, think about expenses you can eliminate from your budget by not going to work, such as restaurant or take-out lunches, commuting costs, and frequent dry cleaning. Get more help deciding whether being a stay at home parent is an affordable option for you.
Will this affect our tax status?
Yes, this will affect your tax status to the positive. You can claim a new dependent on your income tax return. It’s best to get your baby a Social Insurance Number as soon as possible after birth. What’s more, you will be entitled to a Child Tax Credit and possibly be able to claim child care expenses.
Build a cash cushion
Having some cash set aside to handle the unexpected is a good idea no matter what, but it’s especially helpful when you’re going through a big life change like having a child. You’re going to be dealing with a lot of changes, both in how you’re living and in how you’re spending, and having some extra savings will let you navigate them without worrying about is where the money is going to come from.
Manage your saving and spending
You want a system in place to make sure that you have enough money to spend on the essentials, hit your savings goals, and still have at least a little bit of fun. This is where most people would recommend making a budget. Not me. I have my own system for managing my spending and saving, and it doesn’t involve keeping a traditional budget.
Write wills
Absolutely. If you don’t have one, you’ll leave the fate of your child’s guardianship and your assets in the court’s hands. Steel yourself to plot out what you would want to happen if you and your spouse should die. A will lets you dictate who would care for your children in the event that both parents passed away. Otherwise that’s left up to the courts to decide.
Get life insurance
Life insurance is one of the best ways to make sure your family has the financial resources it needs no matter what. Determining the right coverage isn’t as hard or as complicated as you might fear. The right policy buys you priceless peace of mind and a guarantee that your family will be cared for financially should you die before your children are grown and on their own. Your two main choices are permanent and term insurance. Term may make the most sense for a growing family, but both have their advantages.
Have health insurance?
If you’re insured through work, you’ll need to add your baby to your employer’s health insurance. Most health insurance companies have special rules and policies for babies. Ask your carrier to send you the details. You may not have any choice if your employer only offers a single plan but some employers give you multiple options. For the self-employed or unemployed it can get even more confusing. A way to look for health insurance is to find an independent health insurance agent in your area. If you can find a good one, they can help you understand all the different terminology and evaluate which options might be best for your situation. Make sure to ask them which insurance companies they do and do not represent.
Dial up disability insurance
This is one of the most overlooked types of insurance out there. Between the ages of 35 and 65, your prime earning years, you’re more likely to experience a disabling incident that leaves you unable to work than you are to die. Disability insurance will replace some or all of your income if you’re unable to work for an extended period of time because of medical issues, which is much more common than you may think. The truth is that if anyone depends on your income, including yourself, you should be thinking about disability insurance.
Up your liability insurance
Liability insurance is another one that often gets overlooked. Basically, this will cover you in case you accidentally injure someone or damage their property. It’s already a part of both your auto and homeowners/renters’ policies, but chances are that you’ll want to increase your coverage. You can also buy some extra coverage on top of those policies, which is a good idea in a lot of cases.
What are you working towards?
Each of these things is important, but in the end money is only valuable if you can use it in a way that creates happiness. Which means that completing a checklist of to-do’s is only a starting point. The end point is your vision for what you want out of life.
Whenever things with the new baby start settling down and you have a chance to come up for air, take some time to think about the life you want to build for your family. It’s that vision that will give your financial decisions a purpose and will make it easier and more enjoyable to actually follow through.
Take it one step at a time
If you can get the above things handled, you’ll have set a solid financial foundation for your family. There are still next steps to take, like investing and educational funding, but those will build on the foundation you’ve created here.
Still, don’t feel like you have to get all of these things done all at once. Whether you need to handle just one of them or all eight, the most productive thing you can do is spend each day trying to take one small step forward on just one item. If you can make just a little bit of progress every single day, you’ll have them all handled before you know it. Its all a balancing game and just part of Keeping Life Current.
