Having kids is expensive, and the website nasdaq.com provides some important financial considerations for expectant parents in "Having a Child? 7 Important Financial Considerations."
- Estate planning. Everyone needs some basic estate planning, especially those starting families. Before your first child is born, draft a will that establishes guardianship for your children if both parents die. Set up a meeting with an estate-planning attorney to help you with this.
- Budgeting for unpaid maternity leave. Unlike most of the rest of the world, American employers may not always offer paid maternity leave. Companies must give women 12 weeks off for the birth of a child, but aren't required to pay them during this time. Research your employer's policy, and if you won't receive paid leave, you should save more for the loss of income.
- Life insurance. This is a payout to your family or other beneficiaries if you die and replaces your income. If you're starting a family, at least one parent most likely will need to have life insurance. To decide, ask yourself: What happens to my family financially if I die? What money or services would they need to replace?
- Disability insurance. This policy replaces part of your income if you can't work due to an illness or injury. If your family is dependent on your income, you should have coverage. Employers frequently offer disability insurance as a benefit, but if yours doesn't, consider a private policy. If you have a disability policy through work, it may not be enough coverage. Find out the details, and if that is the case, consider purchasing a second policy privately.
- Asset protection. An umbrella liability insurance policy is a great asset-protection tool. It provides personal liability protection over and above the limits of your automobile insurance or homeowners insurance policies. If your auto policy only covers you for $500,000, an umbrella policy would cover damages above that to your policy limits.
- Dependent care benefits. Many employers offer dependent care flexible spending accounts, and with a new family, you should definitely fund an account. You can defer up to $2,500 per year of your pretax salary ($5,000 per year if you're married and file a joint tax return) toward qualified child care expenses like day care or a nanny. These accounts are "use it or lose it," so spend every dollar you put in each year. Using an account can impact your ability to claim the dependent care tax credit, but it may be better for high-earning filers to fund the FSA.
- Education planning. This may be down on the list, but the earlier you start saving for your child's education, the easier it is to save enough. Consider an education savings account, such as a 529 plan, early on and contribute regularly.
These pointers aren't by any means the only ones you should consider if you're starting a family, but they are important and many times overlooked. Try to get these issues resolved before the baby arrives. You'll be in solid financial shape and you can concentrate on other demands and the joys of being a new parent.
Reference: nasdaq.com (March 16, 2016) "Having a Child? 7 Important Financial Considerations"