As a new parent and having a baby, you are focused on one thing and one thing only — the baby’s health.
You have the right thinking. You want to be a good parent. You know it’s a huge responsibility, and you made sure that your home was a welcoming environment.
Okay, maybe you’re still working on the baby proofing.
But there is more than just baby proofing. You’re tired, anxious, excited and an overwhelmed new parent. The last thing you want to do is leave anything to chance — those days are over.
Be the financial rock that your little one needs.
1. Emergency Fund
The emergency fund, the cash reserve, the stash, or whatever you call it. You need it.
How much should you have? The short answer, at least 3 months of expenses. But the more, the better. In reality, probably more than you think. Are you a one household income or two? Are your expenses mostly fixed or flexible? All of these things will impact your emergency fund requirements.
If you have the correct types and amounts of insurance, then the emergency fund fills in the gaps. Take a disability for instance that has a waiting period of 90 days. You’ll need to cover that 90 days and it’s usually more cost effective to do this with an emergency fund than short-term disability insurance.
The emergency fund should be build based on a worst case scenario.
2. Disability Insurance
A financially catastrophic mistake that often takes a backseat to life insurance — disability insurance.
In both instances, the income sources stop. But in the event of a disability, you’re still spending money. Beyond the medical expenses, you’re still another mouth to feed. That may sound harsh, but the reality is, going on disability is no picnic.
If you have coverage through work, you should take a look at the amount and see if you can live off of it. Losing 33% of your income is not something most people can hack. Let alone parents of young children.
But you don’t have to either. Go out and get the coverage you need.
3. Life Insurance
Surprisingly, life insurance is higher on the list for a lot of people than disability insurance or an emergency fund. That’s not to say that your coverage is adequate.
There’s a bunch of different types of life insurance, and I’m not going through them today. As a new parent, the mistake with life insurance comes down to figuring out the right amount you need.
You should consider your liabilities, expenses, and future family expenses.
You don’t get a do-over here. You’re not going to know all the financial risks that follow. Maybe the economy goes into a recession right after your death. Or your spouse makes some poor financial decisions because they’re grieving is blinding. And have to think about child care so your spouse can work — or not if you do this right. And there will be a million unforeseen expenses. Create enough of a buffer by eliminating the burdens that you know exist.
The mortgage, loans, daily expenses, and college, are all things to consider as well.
Even if you decide to downsize or reduce your expenses, you shouldn’t plan on it. The grieving process takes time, selling a home takes time, selling a car takes time, everything takes time. And the banks don’t care; your creditors want to get paid.
And remember, it’s traumatic enough for your kids — don’t make them change schools mid-year.
4. Wills & Trusts
People are funny with their money. Beliefs change over time. And kids end up getting disinherited by accident all the time.
Beneficiary designations are only the basics to getting your wills and trusts in order. Who will manage the life insurance proceeds until your kids come of age? What if neither spouse is around?
Wills and trusts are more than a fictitious thought or some casual dinner table conversation. It’s not what you would “like,” to happen after you pass, it’s what you NEED to happen.
5. Education planning
The intentions for education planning are usually high. Unfortunately, it’s often too little too late. Playing the catch-up savings later on either doesn’t happen or dips into the retirement savings — which is terrible.
I cringe when I see the retirement as the go to fund for everything but retirement.
You need to put education planning as a bill that has to get paid. Systematically saving toward the goal early on can make it achievable. Find out how much you need to save monthly to reach your ideal goal.
6. Balance and support
Get help when it’s available. Seek support when you need it. You may be a great parent, wife, husband or what have you, but you’re human. Your finances can bleed into your entire life — so take the time to get them under control.
A summer vacation or a new remodel might seem good at the time, but anyone with debt would tell you they’re living in debt regret.
Don’t live in debt regret.
A new child is a gift like no other. You are or will become the master in the art of multitasking. But as a new parent living a financially fit life takes work and focus. Make the changes necessary to strengthen your financial life so you can enjoy the rest of it.