retirement

5 Financial Tips for New Parents

In between naps, feedings and burpings, here are five things you should do when you bring home your bundle of joy.

My wife and I welcomed our third child in April — and our third boy! And while we have a lot of experience caring for newborns, another child means we needed to adjust our finances, yet again.

But this time around we anticipated some major expenses and planned ahead. For example, we knew months ago we’d need a new vehicle with three rows to accommodate everyone. So we bought a new minivan in December, believing that we’d get a much better price buying in December than in most other months.

New parents spend the vast amount of their initial months caring for their new infant’s physical needs — as they should. But at some point, they also need to make some financial changes that will serve their new expanded family well.

While new parents are trying to find a few hours in the day to catch some sleep, here are five recommendations for them that will provide some financial peace of mind:

1. Update Your Medical and Life Insurance.

Parents have 31 days to add their new child to their medical insurance coverage. Hospitals provide a document called a “Confirmation of Birth” that must be provided to your insurance company along with other information. This document is vitally important as your child will have at least seven checkups for vaccines and to monitor growth in the first 12 months.

Whether you’ve had your first, second or third child, speak with a life insurance agent to get a new policy or update an existing policy. And make certain both spouses are covered for any situation. For example, if one spouse stays at home and passes away unexpectedly, the remaining spouse could need to pay for child care for many years. A homemaker provides enormous support for the family and is often overlooked since he or she helps the family avoid sizable bills.

However, there is some good news on the insurance front. If you have been waiting to schedule medical procedures, consider scheduling any procedures during the same deductible year. Due to costs associated with the new baby, you will likely hit your annual deductible. For example, I waited to have a minor surgical procedure until the year of our child’s birth so it didn’t cost thousands extra.

2. Revise Your Monthly Budget – Significantly.

Everyone knows they will spend more, but most people don’t realize the increase will be significant. The expense for diapers is one of the best examples. With our first child, we used the first box of diapers in 10 days. I needed to make a trip to the store for a new box, which means I couldn’t get the best possible price.

I recommend increasing your monthly budget by 10% for the first year to cover these expenses. The increase will likely need to be more with the first child, especially if family and friends can’t pitch in to help buy some costly items. For example, outfitting a nursery from a name-brand store can easily cost in the thousands. With a first child, parents make large, one-time purchases such as swings, cribs, changing stations, car seats and baby toys.

Don’t overlook day care or nanny expenses if both spouses will work full-time. The national average cost of an infant in day care is almost $11,000 per year. That’s like having a second mortgage payment!

3. Organize and Track Your Records.

Make certain to get paper copies of key records — the birth certificate, Social Security card and immunization record. Order three copies of the newborn’s birth certificate — one for you, one for your child later in life, and one for your guardian. Your child’s Social Security card will arrive by mail. Also, start keeping a record of immunizations, especially if you need to place your child in day care. Place them in a packet with all other documents and keep them in a fireproof safe.

Finally, record and track all medical bills, both pre- and post-delivery to ensure you don’t overpay, or pay twice, for the same procedure. Parents are often required to prepay for certain providers, such as the obstetrics/gynecologist physician, so don’t forget to ensure you are reimbursed if you met your deductible prior to the delivery.

Call your insurance company if you have any concerns or questions prior to cutting a check.

4. Review Your Estate Plan.

With every birth, especially the first, review and update your estate plan documents, including your will and any trusts. For instance, make certain to nominate a guardian for minor children in your will. A guardian is someone who has legal custody over the minor and control over any assets left to them, such as insurance proceeds, in the case of the death of you and your spouse. Absent direction, the courts will appoint one, which takes this decision out of your control.

If a new child is born and it’s been several years since a will was written, you may need to update beneficiary designation forms for your 401(k), IRA and life insurance. It is important to note that the beneficiary form on file for these accounts — and not anything you might designate in a will — controls where the funds go.

5. Open a College Savings 529 Account.

These education savings plans are meant to help families set aside funds for future college costs. Funds contributed to the 529 plan account can be invested and grow tax-free, and aren’t taxed when withdrawn to pay for qualified educational expenses, such as tuition. In addition, over 30 states currently offer a full or partial tax deduction or credit for 529 plan contributions.

In 2018, the annual gift tax exclusion amount is $15,000. Beginning in 2018, each parent and grandparent will be able to contribute up to $15,000 annually per child and exclude these contributions from gift taxes. For example, both sets of married grandparents can make gifts of $30,000 each — $60,000 in all — to their grandchild’s 529 plan with no estate or gift tax consequences.

About the Author

Jason R. Cross, CFP®, CTFA

Wealth Adviser, Brightworth LLC

Jason Cross is a wealth adviser at McGill Advisors, a division of Brightworth. He works with high-net-worth families in investment management and estate planning and helps business owners develop financial plans to sell their businesses. Jason is a Certified Financial Planner™, Certified Trust and Financial Advisor and an active member of the Georgia Bar Association.

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