This month’s blog topic really hits home for me. My wife and I are in the final month of pregnancy for our first child! I feel that this experience has provided me with some firsthand experience that deserves to be relayed to our clients. There was a lot more preparation and stress involved in this journey than I ever could have imagined. Parenthood is a massive responsibility, and the decision to go down this road should not be taken lightly.
Financial Benefits of Planning for Parenthood
I have noticed, both personally and with my clients, that preparing financially for parenthood can help alleviate a lot of stress on the parents and on the children in the future. Those who have an emergency fund and some retirement savings established are more confident as they enter parenthood.
A weak financial foundation can make this journey much more stressful as parents try to adjust to a new lifestyle without first setting themselves on a strong path beforehand. Also, children learn a lot from their parents, so smart money management can be a skill that is passed down to the children. Not to mention the benefits of any potential inheritance or legacy your children might receive when you pass away in the future.
3 Key Financial Steps for New Parents
There are a few main topics that we discuss with our clients as they are entering parenthood. Here are 3 key areas to focus on:
- Building a Budget for Your Growing Family: It is important to make sure you have an efficient budget setup. You will soon be providing for an additional family member, and this means increased bills. Whether it is medical expenses, increased grocery bills, or even new clothes from time to time, there will be an increase in household expenses. You can learn more about Budgeting in our previous blog post.
- Life Insurance: A Safety Net for Your Loved Ones: Life insurance should be a concern for every family, whether you have kids or not. However, having children increases the need for life insurance, especially if parenthood takes you down to a single-income family. The financial impact of losing a source of income can be detrimental if no protection is in place. Life insurance benefits can be used to pay for monthly bills moving forward, set up savings for college, or help provide retirement savings due to the decreased cash flow. We have discussed different Life Insurance options, but please reach out to your advisor if you are interested.
- College Savings: Planning for the Future: Lastly, we feel the need to address college as a potential large expense for parents. While trade schools and other employment routes are popular, college is still a big focus for those pursuing a professional career. College can cost an arm and a leg if you plan on paying out of pocket for it. This is why we suggest setting aside savings as soon as possible in order to grow these savings before they are needed for college. There are also some tax-advantaged accounts that may be worthy of consideration. You can learn more about these College Savings in our previous discussion.
Communication is Key
It is important to keep your financial advisor informed when you experience major life changes, such as entering the parenthood phase. The topics discussed in this blog are just a few that we like to cover with our clients, but this information may also impact any future recommendations. Lastly, this life event may change the way you prioritize or think about your own financial goals. Having children is a huge expense, and this could delay your retirement age if you are forced to reduce your monthly savings.
Also, having to decide between your children’s college savings or your own retirement savings is a huge decision. We also use the airline example and how you should secure your own oxygen mask before assisting those around you, but we know this decision is never that straight forward. Some clients are willing to work an extra 5 years if it means they can pay for their kids’ college, while others will not budge on their retirement age and decide their kids can take on student loans if needed.
Financial Preparation for Parenthood – Considerations
- Financially preparing for parenthood can help alleviate a lot of stress on the parents and on the children in the future.
- Efficient Budgeting, Life Insurance, and College Planning are just a few main areas of concern for new parents.
- It is important for parents to weigh the impact planning for their children may have on their personal financial plan.
Speak With a Trusted Advisor
If you have any questions about how to financially prepare for parenthood, tax strategies, our 401(k) recommendation service, or other general questions, please give our office a call at (586) 226-2100. Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or your overall financial situation, please give us a call so we can discuss it.
We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.
Best Regards,
Zachary A. Bachner, CFP®
with contributions from Robert Wink, Kenneth Wink, and James Wink
If you found this article helpful, consider reading:
- Understanding the Benefits of a Health Savings Account
- Estate Planning for Blended Households
- Flexible Side Hustles
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