If you are expecting a baby, or have recently adopted one into your family, you have likely begun making big plans for the future. One of the most important aspects to consider while preparing for your new arrival is how your financial habits, responsibilities and goals might change. Here are six things to consider:
Evaluate how your goals may evolve. A new baby has a way of adjusting your short-term and long-term goals. According to the Ameriprise Parents & Finances study, 60% of parents are concerned that the financial tradeoffs they’re making today will impact their long-term financial goals1. From childcare to college, planning for the myriad of expenses that come with parenthood can be overwhelming. Consider working with a financial advisor to discuss how your goals may evolve when the new family member arrives.
Think about lifestyle changes. How will your baby impact your day-to-day activities? Incorporate the cost of family outings and increased expenses into your budget to avoid surprises. Keep in mind that supporting your children in their childcare, hobbies and healthcare needs will take additional investment. Childcare can be very expensive, and this cost continues to rise across much of the U.S. So, whether you choose daycare, a nanny, an au pair, an afterschool sitter or a combination of options, make planning for this expense a priority. If your ideal lifestyle involves a big expenditure, like a new home or car, consult a financial advisor about the pros and cons of making the move today –or further down the road.
Take stock of your career goals. The arrival of a new child may cause you to think differently about your career goals. Perhaps you want to earn a promotion, seek a job with a higher salary or better benefits, or pursue continuing education. Maybe you or your partner are ready to reduce your hours or become a stay-at-home parent. If you are thinking about changing your job status, evaluate how the move may affect your paycheck, retirement savings and benefits, including any available family leave.
Prepare for tuition. While the cost of childcare may decrease if you choose to send your child to public school, private elementary or secondary school often comes with a price tag. Furthermore, the cost of college continues to rise. Consider utilizing a 529 plan, a saving option for educational expenses. You may withdraw up to $10,000 in federal income tax-free per beneficiary, per year to pay for kindergarten through 12th grade tuition at a public or private school2. And, if funding college tuition is important to you, it’s never too early to start saving.
Plan for the unexpected. Unexpected events can affect your finances at any time. Resolve to build or maintain an emergency fund that could cover three to six months of expenses, in addition to prioritizing your retirement savings. After your baby arrives, update your estate plan and insurance coverage (e.g. Medical, life, disability policies) as necessary. (Contact your human resources department for details on when the open enrollment deadline is for you.) According to the Parents & Finances survey, one-fifth (21%) of parents do not have updated beneficiaries on their accounts1. No one wants to think about the worst-case scenario, but planning is important. Having updated legacy documents is critical to ensuring your child is best taken care of should the unexpected happen.
Ponder family values. Start thinking about how you want to teach your child about financial responsibility. Will you give him or her an allowance? What is your vision for giving birthday presents, holiday gifts, vacation souvenirs and other items to your child? What money values do you want to pass down? Being intentional early can help set clear expectations and ensure you and your partner are on the same page.
Expanding your family often has a way of putting your priorities into perspective. If you would like an objective opinion on how to best plan for your goals, talk with a financial advisor in your area.Together, we can work to keep you on-track toward your financial goals.
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