Hey there new parent! With the excitement of a new baby, it’s easy to overlook some key financial steps to take, like updating beneficiary designations. Here are a few steps you should consider.
Update your health insurance policy
Unfortunately, this process does not happen automatically. You’ll need to do it manually and quickly or you could lose out on insurance benefits.
If you have insurance through an employer, you may have limited time to add your child to your policy. Switching to a lower deductible plan is an option if you are concerned about your baby’s potential health care costs. If you are in a high deductible plan and are switching from an individual to a family policy, be aware that you are able to contribute up to $7,300 to a health savings account, or an HSA, for 2022.1
Update your will, trust, and beneficiary designations
Your will not only designates who will inherit your assets, but also who will be the guardian of your child should something happen to both parents. With such an extremely important decision, you don’t want it floating around for the courts to decide if it’s not in your will. Be aware that your employer might offer a benefit that allows you to draft a will and other basic estate planning documents free of charge.
Declaring your child as a beneficiary on any accounts, trusts, and life insurance policies should be another financial priority of yours. Neglecting those documents could cause you to inadvertently disinherit your child from a significant portion of your assets. Don’t rely on your will to divide everything equally among your children. If you completely ignore filling out a beneficiary form, then your retirement accounts would go into your estate and your child could lose significant tax benefits. Sounds like a messy disaster, right? Fortunately, an avoidable disaster if you prepare correctly.
A trust could provide additional benefits such as appointing a trustee to manage money for your child even beyond the age of majority in your state. Do you believe that an 18-year-old will know how to manage the money? Your employer might offer a prepaid legal plan if you decide to draft a trust.2
Adjust your budget accordingly
Have you collected an estimate of your childcare expenses? Getting blindsided by the costs of caring for a child can be avoided if you plan ahead. In 2021, the national average weekly cost for a day care center was $226 and $694 for a nanny.3
If you don’t think you can afford certain childcare expenses, you can contact your state’s Childcare Program Office for financial assistance. You can also claim a dependent care credit on your taxes. Generally, this option is better for families in the 15% tax bracket or lower while the FSA (flexible spending account) is better for families in the higher tax brackets.
The fact that kids are expensive shouldn’t come as a shock to you. Insurance and childcare aren’t the only additional expenses you will have while raising your child. Maintaining a budget can help you navigate the expenses of parenthood. Schedule a meeting with your financial advisor to discuss the best way to create a financial budget that supports your specific journey.
- Fidelity.com, September 2022. https://www.fidelity.com/learning-center/smart-money/hsa-contribution-limits.
- Forbes.com, May 2019. https://www.forbes.com/sites/financialfinesse/2019/05/06/7-important-financial-steps-for-new-parents-to-take/?sh=5f1eb5ab3295.
- care.com, June 2022. https://www.care.com/c/how-much-does-child-care-cost/.