Take These 4 Financial Steps
Congratulations, you’re having a baby! Growing your family is an exciting time of life that brings about big changes. You’re probably nesting — painting the nursery, prepping your go bag, doing Lamaze classes and reading all the right books. I know adding more to your to-do list may not sound great, but here at Creative Planning, we believe the best-built nests incorporate both financial and physical preparation. Expecting parents can set their children up for financial success with these four tips. After all, it’s called a nest egg for a reason, right?
#1 – Establish an Emergency Fund
If you’ve been putting off starting your emergency fund, now’s the time to get serious. It’s important to have enough liquid assets to cover three to six months of living expenses should an unexpected blowout (pun intended) occur.
#2 – Purchase Life Insurance
It’s wise to purchase a life insurance policy with a benefit that’s six to eight times your gross annual salary. A simple term-life policy is typically sufficient; just make sure the term is long enough to cover your kids until they’re old enough to provide for themselves.
#3 – Establish an Estate Plan
Regardless of your assets, it’s vital to establish an estate plan to protect your growing family. Estate plans not only specify how your assets are passed along following your death but also detail who will take care of your child(ren) should something unexpected happen to you. Work with your wealth manager and estate planning attorney to establish the following
- A Revocable Trust/Will – Depending on your situation, a revocable trust and/or a will are the main estate planning documents everyone should have in place. Not only do wills and trusts distribute assets according to your wishes but they can also help minimize estate taxes and legal challenges to your estate.
- Guardianship Designations – While wills typically include guardianship designations, it’s an important enough element to call out separately. If you don’t formally designate who will care for your child(ren) should something happen to you, a court may give custody to a family member you wouldn’t have chosen.
- A Durable Power of Attorney – A durable power of attorney is a legal document that designates an individual to act on your behalf for financial matters should you become incapacitated and unable to make decisions on your own.
- A Healthcare Power of Attorney – Similar to a durable power of attorney, a healthcare power of attorney designates an individual to make medical decisions on your behalf should you become incapacitated and unable to make those decisions for yourself.
#4 – Start Saving for Your Child’s Future
Once you have a solid emergency fund in place, you can start saving for your child’s future expenses. In particular, consider saving in either or both of these types of accounts:
- A traditional savings account – A custodial savings account allows you to maintain control until your child reaches the age of majority, typically age 18. This is a great place to stash any monetary gifts your child receives in order to give him/her a financial head start.
- An education savings account – A popular and tax-efficient way to save for your child’s education is with a 529 savings plan. You can establish a 529 plan even before your child is born and add your child as the beneficiary once he/she has been assigned a Social Security number.
Could you use some help preparing your finances for the arrival of your baby? Creative Planning is here for you. Our teams help clients navigate a wide range of financial challenges to prepare for whatever the future may hold. For help with your financial plan, please schedule a call.