Baby on the Way? Here Are 3 Financial Steps You Need to Take Now
From the hospital bill to the mountain of diapers, babies come with a lot of expenses. However, the cost of raising a child goes beyond keeping your baby clothed, fed, and healthy. If you’re becoming a parent for the first time, here are three financial tasks you should consider taking care of before your little one arrives.
Bulk Up Your Emergency Fund
Can you keep your household running in the event of a layoff, long-term illness, large home repair bill, or other unexpected financial hits? While everyone should have an emergency fund, rainy day planning is especially important for parents. An emergency fund is money you can access quickly and live on for up to three months; single-income households should aim to cover six months of living expenses. Store your emergency fund in a high-yield savings account separate from other banking accounts.
For many families, the thought of saving that much cash can be daunting. If you don’t already have a savings plan in place, now is the time to start one. If you don’t have a lot of spare change after your bills are paid each month, consider ways to cut back on daily expenses. Meal planning, conserving water and energy at home, and precycling are all areas where just about any family can cut costs. The money saved on grocery bills, utility bills, and unnecessary expenditures can be put toward an emergency fund.
Shop for Insurance There are three kinds of insurance to consider now that you’re a parent:
Health Insurance New parents typically have 30 days after the birth of their child to add the infant to a health insurance policy. You’ll need your baby’s Social Security number and birth certificate to add him to a policy. Contact your insurer or your employer’s human resources department if you have an employer-sponsored health plan. Because having a child is a qualifying life event, you can also choose to change your policy to a health plan with more coverage. If your household is low-income, your child may qualify for coverage under Medicaid or CHIP.
Life Insurance When you have no dependents, life insurance isn’t necessary. But now that you have a baby, you need to protect your family in the event of your or your spouse’s death. Life insurance pays money to a beneficiary in the event of the policy holder’s death. There are two major types of life insurance: term life and permanent life. While term life offers more affordable premiums, it only covers a set time period. If you outlive the policy, the money you’ve paid into it is lost. As Nerdwallet explains, permanent life insurance has no time limit and accrues a cash value over time. If you no longer need permanent life insurance later in life, such as after retirement, you can sell the policy for cash. Before you purchase a policy, research your options so you understand what type and how much coverage to buy.
Long-Term Disability Insurance Do you know how you’ll provide for your family if a long-term disability leaves you unable to work? Long-term disability insurance replaces a percentage of your income if you can’t work for longer than six months due to injury, cancer, chronic pain, or another health condition. Some people can buy disability insurance through their employer or professional association at a reduced rate; otherwise, you’ll have to look at individual policies.
Create an Estate Plan If you don't already have a will, now is the time to make one. If you do, you need to update it now that you have a child. In addition to naming beneficiaries of an estate, a will allows parents to name a guardian and contingent guardian for minor children in the event that both parents die. Without a will, a court decides who looks after a child if both parents are deceased.
Parents should also create a trust for money that would be left to a minor child in a will. By creating a trust and naming a trustee, you ensure the money you leave your child is well-managed until your child reaches the age of majority. The trustee or guardian of the estate doesn’t have to be the same person you name as guardian of your child. FindLaw offers advice for selecting guardians. As you write or update your will, make sure you update the beneficiaries on life insurance policies, 401(k)s, and IRA accounts to correspond with your will.
Having a baby changes everything — and not just your sleep schedule. Now that you have someone relying on you, it’s essential that you protect your family from the unexpected. By taking these three steps, you can rest easy knowing your little one is cared for no matter where life takes you.
Guest Post by Alexis Hall of SingleParent.info
Image via Unsplash