Welcome to parenthood! The first thing you should do is celebrate! But along with the joy, diapers, and sleepless nights comes a major shift in your finances.
Suddenly, your financial plan isn’t just about you anymore. To help you navigate this transition, we spoke with Nik Aamlid, CFP®, CAP®, CKA®, Senior Wealth Advisor & COO. Here are the most important financial steps to take as a new parent.
Step 1: Shift From Accumulation to Protection
Before having kids, your goals might center around lifestyle, paying down debt, or retirement. Now, your top priority is protecting the people who depend on you. You have to ask yourself what would happen to your family if you weren’t around tomorrow.
“You’ve first got to make sure that everything is in order in terms of protection, that if something happens to you … the family’s not going to be scrambling,” Nik explains.
Step 2: Rethink Your Insurance Needs
Life insurance becomes a massive priority. You want to ensure your surviving spouse can pay off the mortgage, cover childcare, and fund future goals on a single income. You also need to look at disability and health coverage.
We recommend the following steps:
- Review your life insurance coverage to ensure it covers long-term family goals.
- Check your disability insurance policy, since you’re statistically more likely to face a disability than an early death.
- Update your health insurance to add your child and understand your new out-of-pocket maximums.
Step 3: Designate Guardians in the First 90 Days
If you do only one financial task after bringing your baby home, it should be deciding who will care for them if you cannot. You need to make it legal and official. Nik stresses that a will allows you “to still have a voice when your voice can’t be heard.” Without clear instructions, the state or the courts will decide who raises your child.
We know most new parents are too overwhelmed to update their estate planning documents. You’re in survival mode, dealing with sleep schedules and doctor appointments. However, you must prioritize this! A basic will with guardianship provisions isn’t overly complicated to set up.
Step 4: Adjust Your Family Balance Sheet
A new baby can introduce entirely new expenses to your monthly budget. You should account for items like daycare costs, diapers, and higher health insurance premiums. Because your expenses can be higher, your emergency fund needs to grow, too. A family of three requires a much larger cash reserve than a family of one or two.
Step 5: Plan for College Without Sacrificing Retirement
Many parents want to start saving for college immediately. However, you should prioritize your own financial stability first. As Nik notes, “You can borrow for college, but you can’t borrow for retirement.”
Once your retirement savings are on track, you can explore education savings tools. A personalized plan often uses a mix of different accounts to provide flexibility:
- 529 Plans: Excellent for dedicated education expenses with distinct tax advantages.
- Joint Investment Accounts: Offer total flexibility if you want to help with a house down payment instead of college.
- UTMA Accounts: Allow you to hold funds on behalf of your minor child until they turn 18.
Step 6: Prepare for Life’s Curveballs
Financial planning for new parents is really about answering the curveball questions. You want to make sure your loved ones are protected, provided for, and cared for, no matter what happens.
Reach out to a financial advisor at Pinnacle Wealth to help update your plan today. You define the purpose of your wealth, and an expert team can help you pursue it with clarity.
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