Starting a family is an exciting and life-changing decision. Along with the joy of expanding your family comes the responsibility of planning for your financial future. Parenthood brings unique financial challenges, from managing increased expenses to planning for your child’s future needs.
Taking proactive steps now can help you build a strong financial foundation for your growing family. Here are six key areas to focus on as you prepare to start a family:
Budgeting for a Growing Family
One of the first steps is creating a budget for new expenses, such as medical bills, child care and baby supplies. Start by reviewing your current spending habits and identifying areas where you can cut back in your budget to accommodate these additional costs. Depending on how you plan to grow your family, you may also consider including expenses for adoption fees, fertility treatments and medications. Don’t forget to budget for one-time expenses, such as a crib or stroller, and ongoing costs, such as diapers and formula. Build an emergency fund with at least three to six months’ worth of living expenses to cover surprises because babies are full of them, and not all are cute.
Planning for Time Off
If you or a partner plan to take parental leave, review your employer’s policies and plan for any unpaid time off. Budgeting for a temporary reduction in income can help you stay financially secure during this transition. A bit of planning can make those baby snuggles much sweeter without financial stress hanging over your head.
Health Insurance and Medical Costs
Review your health insurance coverage to ensure it meets your family’s needs. Check whether your policy covers prenatal care, labor and delivery, and pediatric visits. If you plan to add your child to your policy, research the steps required to do so and any additional costs. You may also want to explore a health savings account (HSA) or flexible spending account (FSA) to save for out-of-pocket medical expenses using pre-tax dollars. Consider a dependent care FSA (DCFSA) for any future eligible child-care expenses.
Life and Disability Insurance
Parenting tip: Your little one might think you’re a superhero, but even heroes need a backup plan. Life and disability insurance are crucial for protecting your family’s financial future. Life insurance should be considered for all parents as it can help replace your income and cover child-care costs or other expenses, such as a mortgage or college tuition, in the event your family loses a parent too soon. Disability insurance ensures that your family has financial support if you’re unable to work due to illness or injury.
Saving for Education
Although college may feel far off, starting to save early can make a significant difference. Consider opening a 529 education savings plan or other education savings account to take advantage of tax benefits and compound interest. Even small contributions over time can grow into a substantial financial fund to support your child’s education.
Estate Planning
Establishing an estate plan is essential to ensure your wishes are carried out and your family is cared for in the future. Create or update your will to name a guardian for your child and specify how to distribute your assets. Consider setting up a trust to protect your child’s inheritance and make it easier to manage your assets. Don’t forget to review and update beneficiary designations on accounts such as retirement plans and life insurance policies.
Starting a family is a significant financial milestone that requires careful planning and preparation. By addressing these key areas, you can create a stable financial future for your growing family. Having a support team including a CERTIFIED FINANCIAL PLANNER® professional can reduce stress, provide personalized advice and help you navigate the complexities of family financial and budget planning.
Take these steps now to build a brighter future for your family: a future filled with love, security and just enough humor to get through sleepless nights and toddler tantrums. You’ve got this!