Having a baby changes your outlook on a lot of things: Priorities shift. Empathy expands. Sleep is an afterthought. And money anxieties get a lot more real. With the average cost to raise a child hovering around $233,000, it’s no wonder 73 percent of American parents worry about how they’ll send their kids to college—the most often cited economic concern of any demographic. The good news? There are definite steps you can take right now to shore up your family’s finances and lay the groundwork for a secure future. Start making these changes now, and you’ll rest easier at night (3 a.m. feedings notwithstanding).
1. Bulk Up on Life Insurance
Even if you have a policy through your employer, consider adding coverage that’s not tied to how long you stay at your job. For most families, term life insurance, which pays out if you die within a certain preset period, such as 20 years, is sufficient—and it’s inexpensive to boot. “Term insurance allows you to create a safety net for when you’re raising your children, and it’s not something you’ll need after they’re grown,” says Bre Romeo, a wealth management adviser for Fifth Third Bank. To determine the right amount of coverage to buy, think about how much of your income will need to be replaced and for how long. “You’ll also want to look at future expenses, like paying for college, as well as services you’d still need to provide for, like day care,” Romeo says.
2. Start Saving for College
If you haven’t heard of 529 plans, begin familiarizing yourself with them now. These state-sponsored investment plans allow families to get a jump-start on saving for college; they grow tax-free and can be withdrawn for expenses like tuition, room and board, and textbooks. “It’s a simple way to save for college, and many plans let you enroll with automatic deposits to the account so that you can ‘set it and forget it,’” Romeo says. A couple of caveats: Though you really should open a 529 account as early in your child’s life as possible, don’t do it at the expense of funding your own retirement account. And before you invest anything at all, make sure you have an emergency fund of a few months’ worth of expenses you can tap at any time.
Watch below to learn more about saving for college.
3. Update Your Beneficiaries and Tax Forms
Email HR—it’s time to file new paperwork. This includes adding your child as a contingent beneficiary on your 401(k) plan, life insurance policy and other investment accounts. It also means changing your withholdings on your W-4 forms, which the IRS recommends you do within 10 days of baby’s birth. While you’re at it, see if you qualify for child-related exemptions, deductions and credits, and find out if your employer offers flexible savings accounts for dependent care—if they do, you’re allowed to set aside a pretax amount of $5,000 per year to pay for day care or a nanny.
4. Add Baby to Your Health Insurance
You have 30 days postdelivery to add baby to your employer-based plan, and up to 60 days to do so with some plans bought through Healthcare.gov or a state marketplace. But you should start thinking about medical expenses earlier than that, so you can choose the plan with the most maternity coverage. Speaking of, you should also ask your insurer about any out-of-pocket costs related to your pregnancy that could come as an unwelcome surprise later. If you and your spouse have different plans, look them over carefully to determine which offers the most coverage at the best price for dependents.
5. Draft an Estate Plan
Much like buying life insurance, devising an estate plan forces a couple to consider what would happen in the event of their untimely death; it’s an uncomfortable thought that causes many to procrastinate. But don’t put it off, or the courts get to decide what happens to both your child and your money. “The way to look at it is not that you’re planning for the worst, but that you’re taking care of your family should something unexpected occur,” Romeo says. Your estate plan should include a will, power of attorney, health-care proxy and medical directives for each spouse.
The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank.
The Bump and Fifth Third Bank present Life Made Better, a sponsored series full of financial advice for new parents navigating the expenses that come with pregnancy and parenting. Visit 53.com/better to learn how its services can help make your life even better.