This article is published in partnership with Money.com. The original version can be found here.
By Joe O’Boyle
Recently, a beaming young couple came into my office and shared their wonderful news: “We’re pregnant. What should we do?”
Perhaps the most joyful life event and game-changer for a couple’s financial plan is the birth of their first child. In that spirit, we shared with this couple our top five baby steps for new parents.
Saving and Budgeting
As you start to prepare for those inevitable baby expenses, you’ll want to first evaluate what your monthly budget looks like today. By performing a cash flow analysis that breaks down your take-home income, monthly savings, and your fixed and variable expenses, you can identify areas where you can cut costs and bolster your savings. We recommend a baby savings fund where you set aside money for one-time expenses such as a crib and stroller, as well as ongoing expenses such as daycare and diapers.
529 College Savings Plan
Our clients said that having a college fund to put their baby through college “and hopefully medical school” was extremely important to them. Consequently, we recommended they start saving into a 529 college savings plan. If you open up a 529 account for your child, you retain complete control of the money. Any growth is always federal tax-free and typically state tax-free for college when used for higher education. And should your child be fortunate enough to receive a scholarship, you can transfer the funds to assist another child. Higher education costs are one of life’s biggest expenses. Establishing a savings plan early on can help keep parents from dipping into their own retirement funds down the road.
The first time you are separated from your new bundle of joy, whether it’s for a few minutes, hours, or days, you may begin to wonder what would happen if you were no longer around to protect him or her. There are many life insurance options available varying from term life to cash value policies. While each individual situation is different, young parents on a budget may consider an affordable term life insurance policy that offers a set death benefit amount sufficient to cover their family’s financial needs. Remember, one of the most important aspects of life insurance is to make sure that if an unexpected event befalls you, your spouse and children can maintain their economic quality of life.