Essential Financial Planning for Expecting Parents
You just learned that you are going to have a new baby or child join your family, by birth or adoption. It’s an exciting time! As you start to make preparations you will quickly discover that there is a seemingly endless list of things to do, items to buy, books to read, and classes to take.
Despite what the targeted ads and influencers may tell you, it doesn’t matter too much if your bundle of joy has state-of-the-art nursery gear or the trendiest stroller on the market. But there are a few financial planning considerations that will make a world of difference for your family and your child’s well-being.
1. Estate Planning
As soon as you become responsible to care for a dependent, basic estate planning documents are essential. You may think you don’t currently have an estate plan if you have not drafted a will or trust, but guess what? You actually do have an estate plan! It was written for you by federal and state law and will be administered by a court (at your estate’s expense). If you pass away you can either rely on the state’s estate plan for you, or you can have the peace of mind that comes from writing your own estate plan that is specific for your wishes and your family’s best interests.
At a minimum, all parents (or anyone with financial dependents) should have (a) a will that includes guardianship designations, (b) an advanced health care directive, and (c) a durable power of attorney. Many parents or guardians will also want to establish a trust.
In addition to drafting these documents, we also recommend making sure that you have named non-minor primary and contingent beneficiaries on all your financial accounts and life insurances. At your death, many accounts will simply pass to the named beneficiaries on file.
Check out our post Estate Planning: A Checklist of Essentials for more valuable guidance as you review your estate planning.
2. Life Insurance
If you were to pass away tomorrow, your partner and/or children would most likely need additional financial support. The cost of a funeral, additional child care, extra time off work, and covering everyday expenses and bills can add up. Not to mention the desire many parents have to help with specific expenses, such as education, for a child. Life insurance can fill that gap and provide vital support and peace of mind to your family during a difficult time.
Whatever role you serve in your household, there is a cost to your absence. If you are an income-earner for your household, the loss of your income would need to be supplemented for your family. If you are the primary caretaker of children and household manager, your labor would need to be replaced. Life insurance is for everyone with dependents, no matter their income-earning or employment status.
Term life insurance is usually inexpensive and easy to obtain. We strongly recommend term life insurance for all parents or those with dependents.
3. Extra Cash Savings
The cost of having a baby is no small thing. There are baby essentials to buy, doctor’s appointments to attend, and the labor and delivery bill at the end. It can add up to thousands of dollars to bring a new life into the world, and that is without a single complication. Additional medical care, a NICU stay, or any other unexpected circumstances can compound the bill.
When you find out that you, or your partner, is pregnant, you should start making plans for your cash flow needs. Remember that so much of the next 9-12 months is unpredictable for your bank account, so having a larger-than-average cash reserve is a good idea.
Medical care and baby items are the first expenses that come to mind when planning for your new child. But it is wise to also consider what other large expenses may come up during the pregnancy and postpartum period. Your savings account during this time has to do double duty as a baby preparedness fund and an ongoing emergency fund.
Consider two of the biggest culprits for emergency fund withdrawals – home repairs and car repairs. Do you have a lingering issue with a home appliance that is going to require a repair or replacement any day? Is your old car on its last leg? Is there anything in your house or car that needs to be addressed to ensure safety for your little one? Keep in mind that these non-baby expenses can and should be part of all the other preparations.
There is no hard fast rule for how much to save for a new baby, but having easily-accessible cash in a savings account is a must. If your emergency fund is slim, it may be time to pause aggressive debt repayment plans, saving for your next vacation, or excessive spending on non-essentials and put that extra cash in savings. Once you have returned to a more predictable financial situation, you can reevaluate your budget and priorities and return to your usual emergency fund and other financial goals.
4. Know Your Legal Rights and State Benefits
The state that you work in may have specific laws that require your employer to provide a certain amount of leave for pregnancy-related disability and/or bonding with a new child. Your state may also have paid leave or disability pay available for pregnancy and the postpartum leave period. You should carefully research your legal rights as a worker in your state and be familiar with all the benefits available to you.
In California, there are three laws or resources available to support you during pregnancy and postpartum and to bond with a new child: the Family and Medical Leave Act (FMLA), Paid Family Leave (PFL), and State Disability Insurance. FMLA legally protects the ability of eligible employees to take up to 12 workweeks of unpaid leave a year. PFL provides up to 8 weeks of payments for lost wages due to time off work to bond with a new child. State Disability Insurance may provide payments during pregnancy and postpartum recovery if you are unable to work.
Visit the following state websites to learn more about these California benefits:
FMLA Frequently Asked Questions
Am I Eligible for Paid Family Leave?
Disability Insurance – Pregnancy FAQs
5. Know Your Employer’s Policies and Make a Plan
On top of any legally-required paid or unpaid leave, your employer likely has their own company policies related to family leave. Ask your HR representative for all the information you can get about these policies. Start making a plan for how you (and your partner, if applicable) will take leave and how you will bridge any gaps in income during this time.
Your ability to negotiate paid or unpaid leave depends on various factors, but many employers are becoming more family friendly. Talk with a trusted supervisor or manager about your options. Don’t be afraid to negotiate and ask for what you need in terms of additional paid time off, schedule flexibility, or extended leave.
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Are you expecting a little one? First – congratulations! If you feel like now is the time to get the support of a financial professional for your growing family, contact Warren Street for a free one hour consultation.
Kirsten C. Cadden, CFP®
Associate Advisor, Warren Street Wealth Advisors
Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor
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