New Parents: Plan for Financial Success
As a parent you have many financial responsibilities to balance. Get started by creating a will and saving for the future.
Protect Their Future
Create a will. Use either an online program or hire a professional to name your child’s guardian and to designate at what age any payouts, savings, or investments will be distributed.
Health insurance. If you are a new parent, notify your employer within 30 days of the birth of your child to ensure that the child is eligible for any dependent benefits. Purchase healthcare if you don’t already have it.
Life insurance. If you are employed, review your employer’s life insurance plan and determine if it is adequate for your needs. If your employer does not offer a plan or yours is inadequate, consider purchasing additional life insurance.
Child care. Consider establishing a flexible spending account (FSA) if one is offered by your employer. Parents can use pretax dollars to pay up to $5,000 in child care expenses in most states.
Save for the Future
College savings. Even if you can’t start right away, save what you can when you can. Every little bit will help when your child’s college bills come due.
Save what you can, when you can. Save $100 a month when your child is born (at 6 percent annual interest) and your investment could grow to $38,200 by your child’s 18th birthday. Start five years later instead, and your total reaches only $23,400. Postponing saving until your child enters high school means you’ll end up with just $5,400. There are several savings options, you can review them here.
Short-term accounts. Put money for short-term expenses (one to five years) in safe investments such as savings accounts and certificates of deposit (CDs). These low-interest-rate investments will not grow dramatically, but they will not lose money, either. Keep accessibility in mind: Will you be able to tap the investment when you need the money?
Long-term accounts. Money you will need beyond five years should have the opportunity to grow—at a risk level you are comfortable with. Use a combination of super-safe, steady-earning savings accounts and more volatile stock and bond mutual funds to provide flexibility in timing your withdrawals. This strategy can help protect you against having to take losses when you don’t want to.