I have found the biggest mistake young families make is not planning prior to the arrival of their children. The fact is, the better you prepare for your financial future before baby is born, the better you’ll be prepared for the unexpected.
New parents do not completely understand or appreciate just how chaotic the weeks, months and years will be after a little one arrives. Between the feedings, attempts to sleep and shifting schedules, the opportunity to sit with a financial professional after the baby is born can feel almost impossible.
There are a few things new families can do before birth to get in good shape for baby.
1. Pay down debt.
The nine months leading up to baby is a great time to pay down debt. Typically expenses are lower in the months leading up to baby’s birth, given diaper costs and baby food have yet to hit the pocketbook. Many clients strive to live on one income to increase their savings and pay down debt. If debt is not an issue, use this time to increase your savings account to prepare for the new expenses such as a car seat, crib, diapers and delivery costs.
2. Review your coverage.
New parents should understand their current coverage and update and adjust it if needed. If the ins and outs of benefits at work are presently a mystery, call human resources for a refresher to understand what medical coverage and maternity leave policies cover.
Review your life insurance and disability income insurance to make sure it meets a growing family’s needs. Term life insurance may be an affordable option for most families and can be purchased for a certain period of time to help protect a family’s financial well-being in the event of an untimely death. Disability income insurance is designed to protect a portion of an individual’s income. The bottom line is that losing the ability to earn an income may make it difficult to make ends meet. Disability income insurance can be a practical solution to help protect a family’s financial security in the event of a disabling illness or injury.
As a parent, don’t guess when it comes to coverage amount, work with a financial professional whom you trust and can help you understand your needs in the event either parents were to become disabled or die.
3. Establish a budget.
Lastly, establish a clear budget prior to the baby arriving so you know how much money is currently allocated to meet financial needs. This will allow you to determine how much money you can allocate to the new expenses such as diapers, formula, day care, baby clothes, etc. or if you need to cut back on certain expenses to keep you from overspending.
By taking the time to review these important topics, you will remove the concern and worry that comes with not knowing what your family has in place. Instead you will find yourself in a position to simply enjoy the special moments as a new parent knowing you have taken steps to protect your family.