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3 Financial Moves for New Parents

June 08, 2020

My wife and I welcomed our baby girl, Emmy, almost 17 months ago and it has been an amazing and eye-opening experience. Life just isn’t about us anymore and we are VERY okay with it.  Oh sure, I didn’t love the time she threw up down my back while we were out at a restaurant. Nor the time her lunch got all over my shirt (it was already eaten...and digested…and didn’t come back up out of her mouth...), but the good times FAR outweigh the bad. Of course, your baby being happy and healthy should be your main focus, but there are some extracurriculars that you need to be aware of once your new son or daughter enters the world. 

Here are 3 financial moves for new parents to consider: 

  1. 529 College Savings Plan

Lucky you, mom and dad. Not only do you have a beautiful new baby to raise, but you also get to help pay for college! Now listen, don’t expect to save every dollar that college will cost in the future for your new bundle of joy.  Collegeboard.org says that, “Generally, most families cover the cost (not all of it) from 1/3 savings, 1/3 current income, and 1/3 borrowing.”

Using Collegeboard.org’s college cost calculator, a child that is born in 2019 and will go to a 4-year out of state school starting in 18 years will pay $352,396.  If approximately 1/3 of that, or 35%, will come from savings, you’ll want to open a state 529 Plan.

529 savings accounts are education savings plans meant to help families set aside funds for future college costs. Here are some quick facts to know:

1. Funds contributed to a 529 Plan grow tax-deferred, and if used for qualified education expenses (private high school tuition as well) they can be withdrawn tax-free. That’s a big deal.

2. You do not have to use your resident state’s 529 plan, which could be inferior to other state’s 529 plans. Shop around. Each plan has different investment options and possible state tax deductions, but not all do.

3. You can change the beneficiary if your child decides not to go a private K-12 school or higher education. The only caveat is that the new beneficiary needs to be part of the family (ie. parent, sibling, first cousins, etc.).

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2. Life and Health Insurance 

Health: Having a baby is a qualifying event, which gives you a 30-day window to enroll your new baby in health coverage and even change your health plan if it does not fit your family any longer. Make sure the plan is still suitable with your new addition.

Life:  Would your spouse be able to financially support your family if you were no longer here?  Most would answer no, which is where life insurance comes in. There are two types of life insurance to choose between; whole and term. We will focus on term here because it’s cheaper and accomplishes your goal of family/income protection.  For example, a 30-year-old healthy male in New Jersey can receive a $1,000,000 20-year term life insurance policy for approximately $375/year. Check out our life insurance calculator to see how much insurance you may need: Life Insurance Calculator.

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3. Estate Planning

Last Will and Testament:  For young parents, writing a will is less about who their assets will be left to, but rather who will be the guardian of their child if something were to happen to both of them. You much rather decide who will care for your kids rather than the courts. 

Depending on the state you live in, if you were to decease your assets may trickle straight down to your children (or even your parents in some cases) instead of your spouse. Most people would want their spouse to receive their assets and be used to support their family, so it’s something to keep in mind. 

Living Will:  This document lets you determine what type of end of life care you’d like to receive if unable to communicate it yourself.  Unlike your Last Will and Testament, your Living Will plays a part while you’re still alive.

Durable Power of Attorney for Health Care: Choose the person you would like to make medical decisions for you if you were unable to make them yourself.  Most times this will be a spouse, but it’s important that it is your decision.

Durable Power of Attorney for Finances:  Similar to a DPOA for health care, choose who will make financial decisions on your behalf if you were seriously injured and could not make them for yourself.

All of these estate planning documents should be created by a lawyer to make sure they are done correctly.  This is some serious business we’re talking about, so shelling out a few extra sheckles to make sure nothing is missed could save you in the long run.

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If you have a specific question or you’d like clarity on a particular issue, feel free to reach out. I’d be happy to help. 

Robert.A.Gariano@ceterafs.com

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Fun Fact: A $1 bill only costs 5 cents to make. According to the Federal Reserve, each dollar lasts about 6 years, and there's about $1.79 trillion of U.S. currency in circulation right now. 

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Disclaimer: This is meant to be general information and is in no way a recommendation for any investment product. All commentary above is purely my opinion.