Financial Planning Now That Your New Baby Has Arrived

First, congratulations! Second, a seasoned wealth adviser is here to share his knowledge and experience of planning for and protecting the future of his newborn.

An infant smiles while lying in a crib.
(Image credit: Getty Images)

Parents know that you can plan ahead in every way that you can think of for the arrival of a new baby, but when the child is born, that plan may just be thrown out the window, and you need to start the process again. In my previous article, Short-Term Financial Planning for First-Time Parents, I interviewed my colleague Ignatius (Iggy) D’Anna, who was expecting his first child with his wife, Kate.

Iggy provided some insight into what he was preparing with his family’s budget and finances before his son was born. Now that the baby has arrived and Iggy has returned from his parental leave, I circled back with him to see if any of those strategies changed, and if he has any tips to share with other parents-to-be when it comes to financial planning with a new baby.

Kara: Congratulations to you and Kate on the birth of your son! I am sure that you are overjoyed — and tired — now that you are officially a member of the Dad Club.

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Iggy: Thank you, Kara! It’s been such a special time in our lives welcoming Walker into the world. I thought it would make sense to provide some updates and to discuss some longer-term financial planning strategies to complement our previous discussion.

Kara: We discussed previously that babies can be expensive and that you had made a budget for all the new things that you were going to need. Now that you have actually started to use the items from that list, do you have any practical tips on keeping up with baby supplies and their costs?

Iggy: I think some good advice that we learned in planning for a newborn is to make a list of the things you need, the things you think you’ll need and the things you want. It’s important to make sure you have the essentials but save most items in your online shopping cart for if/when you need them. In our case, Amazon Prime has been a lifesaver as a new parent. You can get most items within two days and many within one day (depending on where you live), so it makes it so much easier than having to drive around to different stores and checking on inventory. I can also keep track of the actual expenses easily by shopping in one place, and that helps compare costs to the budget that Kate and I prepared.

Kara: Now that your son has been born, how do you start to think about the future for your family? Any financial planning tips you think are important to share?

Iggy: Let’s get into some longer-term planning strategies families can implement. A topic toward the top of the list is life insurance. Kids are expensive and increase your overall cost of living. Life insurance is an affordable way to provide protection for your family if unexpected circumstances arise. I believe that if you don’t plan for the possibility of something bad happening, it could devastate you if it does happen.

Families rely on the income of one or both spouses to cover their financial needs, and it’s important to update those needs to reflect updated living expenses, childcare, education costs, etc. The birth of a child is a major life event that triggers the need to either assess current coverages or to put coverage in place if you don’t already have it.

Kara: As a new dad, I am sure that you feel a great deal of responsibility for making sure that you take care of your son in the future. How do you and Kate ensure that Walker is raised in the way you both intend if something should happen to you?

Iggy: Another important topic is drafting or updating estate planning documents. You will want to update these documents now that your child is born so that your wishes are documented. There are some specific designations that come into play when you have a child.

You will want to discuss who you would like to serve as a guardian for your child if anything were to ever happen to both of you. This is a very personal decision because there are family dynamics at play and different philosophies on raising a child. I would venture to say that most people don’t want the courts to be making this decision for them.

In addition to guardianship, you’ll want to consider who you would want to handle the financial aspects as well as how and when you would want your child to have access to any assets they would potentially inherit.

Kara: What do you recommend a parent or guardian should do with their financial accounts to make sure their assets are passed on to their heirs?

Iggy: You’ll also want to update your beneficiary designations on the applicable accounts. Most families I work with designate their spouse as the beneficiary and then their children as the contingent beneficiaries. This is a good opportunity to revisit beneficiary designations and to add contingent beneficiaries as well.

Kara: It must be hard to think about possibly not being around to raise your son.

Iggy: I know that this discussion has started with some grim topics, such as discussing the need for life insurance and estate planning documents, but I’ve seen some unfortunate and unintended consequences when these things weren’t addressed ahead of time.

Let’s move on to something positive for new parents. So far, we’ve discussed the increased costs of having a child, but we can finally talk about some potential savings when it comes to tax planning. The first opportunity is the child tax credit, which is a $2,000 tax credit per child for those with a modified adjusted income below $400,000 (married filing jointly) or $200,000 (single). A tax credit is a dollar-for-dollar reduction in the amount of income taxes owed, so this is a good thing to take advantage of.

Kara: Savings on taxes are always welcome. Do you have any other tips for parents that are related to children and smart tax strategies?

Iggy: There is also the child and dependent care tax credit. This is specifically designed to help those who work or are looking for work with expenses related to childcare. I recommend that you consult with your tax adviser to discuss these credits, any additional opportunities, as well as updating your tax withholding on your income if necessary.

Kara: There are so many things to think about when you are doing financial planning for families. Are there any considerations you are putting in place to begin planning for Walker’s future?

Iggy: It’s never too early to start saving for your child’s education. You can open a 529 college savings account where you and others are able to make contributions and can receive tax advantages for education costs down the line.

In working with many families, I find that different people have different perspectives when it comes to funding education, who is responsible and for how much. This is an important subject to have a conversation around what the goal is and put a plan in place to act on.

I hope this is helpful and provides some reassurance to the parents and future parents out there.

The CDFA® mark is the property of The Institute for Divorce Financial Analysts, which reserve sole rights to its use, and is used by permission.

Certified Financial Planner Board of Standards Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Kara Duckworth is a CERTIFIED FINANCIAL PLANNER™ professional at Mercer Advisors. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors is registered as an investment adviser with the SEC. Content is for educational and illustrative purposes only and does not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Kara Duckworth, CFP®, CDFA®
Managing Director of Client Experience, Mercer Advisors

Kara Duckworth is the Managing Director of Client Experience at Mercer Advisors and also leads the company’s InvestHERs program, focused on providing financial planning to serve the specific needs of women. She is a CERTIFIED FINANCIAL PLANNER and Certified Divorce Financial Analyst®. She is a frequent public speaker on financial planning topics and has been quoted in numerous industry publications.