Becoming a parent is life-changing, and so are the financial responsibilities that come with it.
As a financial advisor who has worked with new parents – and as the father of two young children myself – I understand how daunting it can be to navigate the financial challenges of raising a family.
But having a plan in place can help you set your family up for success and help you feel more confident and prepared for what lies ahead.
A great first step is to look at your budget. You’ve probably noticed that those diapers, baby gear, and childcare costs add up. Look for discretionary spending that you could cut to allow for these expenses. A budget app might help.
Now is also a good time to make sure you have, or are working to build, an adequate emergency fund. Depending on your income, we suggest that you set aside enough savings to keep you afloat for three to six months in case you lose your income or experience an emergency. This fund is even more important now that you have another person in your family to care for.
You may also want to start an education fund. College is expensive and getting more so every year. If you start a 529 plan early, those funds have time to grow along with your child. Asking family members to contribute for birthday and holiday gifts can help it grow even faster. And keep in mind that 529 funds don’t have to be spent at a four-year college. They can be used for vocational schools, trade schools, and apprenticeships, or even rolled into an IRA, subject to certain conditions.
Being prepared isn’t only about spending cuts and savings. It’s also about making sure your child is taken care of if something happens to you.
It’s important for you to create or update your estate plan, with a will and clearly established guardians who would step in, if needed. It’s also vital for you to have adequate and appropriate life and health insurance coverage.
As your child gets older, explain what you’re doing to give your family a strong financial footing.
Part of being a parent is being a good financial role model and teaching your kids to be smart stewards of money. You might start a savings account in their name and let them contribute any gifts they receive. When the time is right, you may choose to give them an allowance. Talk about saving, spending, and charitable giving as they grow.
All this information is not meant to overwhelm or frighten you. I understand that life is expensive and finding ways to cut your budget can be tough. But you don’t have to get everything perfect right away. Financial planning is a journey. Every step you can take today makes a big difference tomorrow.
If you're a new or expecting parent and want help building a customized financial plan for your family, please reach out to us at Rea Wealth Management.
By Tony Yoder
Financial Advisor
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