In today’s post, I’ll discuss financial moves to make as a new parent. This is part 2 of a 2-part series. I’ll address each in detail, but here is a summary of the moves.
Get your estate planning done – it’s going to be key to ensure if you are not there your little ones are protected.
Increase or get life insurance– the article will discuss how to replace yourself financially if you are not there to continue earning.
Modify your spending plan/budget – babies are very expensive, and your monthly numbers will change.
Modify your health insurance by adding the baby, as well as considering if changes are appropriate. Includes all aspects of your health insurance.
Take advantage of tax breaks that come from having a dependent. In addition, get started on college savings.
In part one of the post, New Baby – Money Planning Tips To Avoid Bankruptcy, I discussed some practical ways of keeping initial costs down when the baby is on the way.
In part 2 (today’s post), I’ll address the financial moves to make as a new parent, as well as the bigger financial considerations and family decisions required when the new baby arrives.
A big part of this is the need to start thinking long-term.
There are 7 major financial moves to make as a new parent – some can be completed before the baby is born or shortly thereafter.
Estate Planning For The Family – Financial Move 1
Now that you are going to be responsible for a new life, you have to start thinking about what would happen if you were not here to take care of the little one.
It can be very difficult to decide who is best placed to take care of your baby, which leads to a lot of people not doing anything at all about it.
According to a survey conducted by Caring dot com, 36% of parents with children under 18 don’t have a will. The consequences of not having an estate plan can be devastating if something were to happen to you.
I understand the hesitancy with naming guardians, but not having one means the courts get to decide who is best placed to bring up your kids.
You don’t want that to happen. If you are foreign-born, you can name international guardians for your kids, but do it right by working with an attorney who understands the intricacies of foreign/international guardianship
Naming guardians is part of creating your whole estate planning documents. In this post, I detail 6 reasons, why you need an estate plan even if you are not a millionaire.
It’s more to do with protecting yourself and your kids and not having millions to leave behind.
If you are a non-US citizen, filing as a US nonresident and you own US property (US-Situs), you only get a 60k estate tax exemption.
This means failure to plan can lead to extremely high unnecessary estate and income taxes.
The equivalent of your hard work over the years going to waste.
This is probably one of the most critical financial moves to make as a new parent – don’t skip it.
Life Insurance – Financial Move 2
If you have dependents relying on your income, consider what will happen if you are not there to support them anymore.
This is critical especially if your spouse is not working.
Foreign nationals can get life insurance in the US, but it may require extra steps and extra documentation.
An alternative is to start with workplace insurance if available, before venturing outside.
There are companies like international insurance that insure globally mobile people, so it can be done.
We can also guide you to agents that deal with this regularly.
Another thing to consider is disability insurance, start with the workplace option and consider increasing it based on how much of your income you’d need to replace.
This is the one financial move to make a new parent that I see ignored a lot – please don’t ignore it.
Modify Your Spending Plan (Budget) – Financial Move 3
Bringing up a baby in the US is an expensive endeavor. It will cost on average over $233,000 to raise a child today to age 17.
This means close to $14,000 + extra on your yearly budget or about $1,200 more per month.
The previous post referenced goes into detail on ways of reducing this cost, but it must start with a new clear spending plan.
It’s a great time to re-evaluate your values and decide what’s important.
Decide what kinds of experiences you want your kids to have and how you want them to grow up.
Start thinking about the kind of baby care arrangements you want to have.
Is it possible to have your family come visit to help with bonding and getting through the first couple of months?
If so, awesome, but be prepared for the financial cost of bringing them over.
Overall, it also means your emergency plan will go up by about $14,000.
I recommend 6-12 months for your emergency plan funds, plus tickets home, in case you have to leave the country for an emergency.
Add Baby To Health Insurance Plan – Financial Move 4
A new baby is considered a qualifying event. It means you can make major changes to your plan because of that event.
For example, moving everybody to your spouse’s plan, enrolling, or changing your FSA (Flexible Savings Account) election.
But you cannot go below what has already been refunded in this type of account.
Specific events are defined by the IRS, and the birth of a new baby is one such change. Make the most of the event.
Take Advantage Of The Tax Breaks – Financial Move 5
In 2022, you could claim a tax credit of up to $2,000, which had nothing to do with when the child was born.
The child tax credit starts to phase out at the income level of $200,000 (single), and $400,000 (married filing jointly)
Having a child creates a brand new dependent for your household, which means less taxes.
Consider getting the number of withholdings reduced to accommodate this change. Have this update made with your HR people to ensure you have less withheld on an ongoing basis.
College Saving – Financial Move 6
Saving for college will go a long way in helping your little ones on the path to starting the American dream.
The easiest option is the 529 plan, which can be funded by anybody, including grandparents in and outside the US.
There are different kinds of plans, based on the state. A few states will give you a tax break, based on how much you save.
This is a critical financial move for a new parent, but it should not come at the expense of estate planning or the insurance move.
The beneficiary needs an SSN or ITIN number to be able to take advantage of this.
I have addressed 529 college savings account in other posts, based on your situation – check them out below.
By the way, there are other ways of saving for college beyond the 529 plan, for example using a brokerage account.
Be Prepared For Life To Change – Move No 7
Having a baby is a life-changing experience. Every baby is different, and even though this may not be your first one, every experience is different.
If it’s your first be prepared for more than just the money considerations, reach out for help when you need it, and ensure you are surrounded by a supportive community.
Be very kind to yourself, and avoid making major life decisions (besides the moves we’ve discussed above).
More than anything else enjoy having a baby in your life and watch your life change (hopefully for the better), over the months and years.
The financial moves to make as a new parent above will ensure your financial life can continue to thrive over the years as part of your American dream.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for the purchase or sale of any security, investment advisory services, or legal advice. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.