Your beautiful new baby has arrived and you think you’ve got the safety thing under control. The house is childproofed, you’ve got the pediatrician’s phone number posted on the fridge, and a brand new car seat sits in the back of your minivan. But physical safety is just part of the challenge. Unless you’re Julia Roberts and your baby has a multimillion-dollar trust fund, you need a financial gamelan that will keep your baby financially safe in times both good and bad. Here are five steps to help you get started on the right financial foot.
Step 1 – Get Life and Disability Insurance
From diapers to diplomas, the cost of raising a child can really add up. If something awful were to happen to you or your spouse, life and disability insurance offer a safety net to keep your loved ones’ financial lives on track. You can get an estimate of your insurance needs by using the online calculators at the non-profit Life and Health Insurance Foundation for Education (LIFE) at www.lifehappens.org.
Step 2 -Build an Emergency Savings Fund
You never know when your roof will spring a leak or when the job market will turn sour. Keeping six months of income in a savings account or money market fund can help weather life’s inevitable pitfalls. Try setting aside money at the beginning of the month, not the “extra” at the end – there’s rarely any extra!
Step 3 – Start Saving for College
Your baby may not even be crawling yet, but with college costs rising 40% in the last decade, it’s a good idea to start saving early. Consider opening a Section 529 college savings account. As long as you use the account for qualified higher education expenses, all distributions will be tax-free.
Step 4 – Pay Less Taxes
Many employers offer flexible spending accounts which allow you to set aside thousands of dollars in pre-tax income to pay for qualified childcare and healthcare expenses. Depending on which tax bracket you are in, using these accounts can save you thousands of dollars a year.
Step 5 – Talk to a Pro
The financial stakes rise considerably when you bring a new child into the world, which is why it’s always wise to seek the advice of a qualified financial professional. Ask for recommendation from a trusted friend, family member, business associate, or your lawyer or accountant.
Now that you’ve got that all covered, enjoy your new baby!