Financial Planning for New Parents

By Paula Andruss

It may not be the most fun part of having a new baby, but getting your financial and legal ducks in a row is more important now than ever before.

Having a baby presents you with a new financial responsibility.  You’ll want to protect not only that child’s future but your own as well, so that your family will be in the best financial situation possible.  Consider these tools to set your family up for financial success:

A will. This document doesn’t just designate who will receive your assets, it also determines guardianship for your child. Without a will, the state decides who will care for your child.

Life and disability insurance. These policies ensure that your child is provided for in the event of your death or a debilitating injury. Experts typically recommend term insurance for new parents in the amount of five times their annual earnings, plus the cost of college.

Emergency Savings. No one is immune to illness, injury, or job loss. The bare minimum protection is three months of fixed expenses in a liquid account, such as a savings or money market, but experts recommend having on hand six months of all living expenses.

College Savings. For a strong option close to home, state-sponsored 529 college savings plans offer unique benefits; for a state-by-state run down, visit www.collegesavings.org.  Another option is the Coverdell Education Savings Account, which also allows earnings to grow tax-deferred until withdrawn. No matter what your goals, it’s important to start now. If you start saving $100 a month when your baby is born at an 8% annual rate of return, you’ll have more than $48,000 for college when she’s 18. But if you wait ten years, that amount drops to $13,300.

Retirement Savings. Saving for your own retirement is even more important than saving for college. While your child can get loans and financial aid for college, no one will help finance your retirement—and you don’t want your child to have to take on that burden in your later years.