If your family is expecting, congratulations! A baby on the way is one of the most exciting, life-changing, and overwhelming times of one’s life. The arrival of a baby also means changes in your finances. From the hospital bills to education, a child can cost half a million dollars, when all is said and done!
If you have a baby on the way, make sure you’ve addressed these four essential topics.
1. Reserve a Spot for Daycare
It’s easy to get wrapped up in the excitement of being pregnant and the overwhelming nature of endless decisions. What crib should we buy? How many strollers do we need? What’s the highest rated car seat? When you’re preparing for the baby’s arrival, many people put off planning for daycare. They assume they’ll have time before the baby arrives and they have to return to work.
But as we all know, time flies and, before you know it, it will be time to go back to work. Unfortunately, those that neglect to plan early learn the hard way child care centers book quickly. As a result, they may end up frantically scrambling in search of alternatives.
It’s never too soon to find a daycare facility for your baby and book a spot in advance. This was one of the best pieces of advice that a client gave me when my wife and I were expecting our first child. The best and most highly coveted child care centers are booked far in advance for a reason. And if you’re still not convinced, I’ll share one of my experiences to show just how challenging this can be. My daughter was on a Montessori school waitlist for two years before an opening was available!
2. Review Your Life Insurance Coverage
Your life insurance needs may change now that you’re adding another member to your family. It may also change if you were to lose an income should one of you choose to stay home instead of work, either temporarily or permanently.
To ensure your life insurance coverage is appropriate for your new situation, you’ll want to conduct a Needs Analysis. This can help you understand how much coverage you need to protect your growing family adequately. Two of the biggest factors that affect how much insurance you need are your marital status and your financial dependents.
Through this Needs Analysis, you can determine how your coverage may need to change to replace the incomes of the working spouses. If one of you chooses not to work, consider adding life insurance on that person to cover the costs of childcare, should he or she pass away prematurely.
3. Start Saving for Your Child’s College Education
While a college education in the U.S. can cost upwards of $334,000, it’s a good idea to start saving for your child’s education as early as possible. Take advantage of time to reap the benefits of the time value of money. If you put $100 a month toward your child’s college education, after 17 years’ time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a 5% annual rate of return.*
You’ll also want to consider how you’d pay for tuition if you have more than one child. You may need to set up a tracking system so you can organize what you are saving for each child.
If you’re having trouble prioritizing your savings, consider having your retirement savings take precedence over college. Many parents who choose to save more of their money for retirement realize that they are on their own, and they don’t believe social security will be enough to cover their cost of living in their retirement years. While these parents may put some money into their children’s college savings accounts from time to time, they realize that in order to take care of their family, they need to take care of themselves first.
4. Consider Completing a Living Trust
Trusts can be an efficient measure for avoiding probate and controlling what happens to your assets after you’re gone. A living trust is a type of trust that is set up during your lifetime and can either be revocable or irrevocable.
With a revocable trust, you maintain control of all the assets in the trust and have the ability to change the terms at any time. For an irrevocable trust, the assets in it are no longer yours, and you can’t make changes without getting your beneficiary’s consent. The main benefit is that the appreciated assets are not subject to estate taxes.
While drafting a living trust can be more time-consuming and expensive than a will, the long-term benefits may be worth it. A living trust offers privacy, avoids probate, and may help you save more money in the long run. Something you may want to consider is set aside the money needed for a living trust before your baby arrives and before you are faced with the additional expenses of your new family member. This way, you’ll ensure that you have the money to pay for it when the time comes.
If you’re feeling overwhelmed or financially unprepared, chatting with a financial advisor to review your financial strategies may help you feel more confident. If you’d like to discuss your current circumstances and how you may need to adjust your financial strategies, I’d be happy to meet with you. To set up a meeting, call my office at (949) 221-8105 x 2128, or email me at [email protected].
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at [email protected].
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.
*The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for higher returns also carry a higher degree of risk. Actual results will fluctuate. Past performance does not guarantee future results.