7 Financial Planning Activities To Do Before Your Baby Is Born
When a baby arrives, visitors come through the door, and the parents’ financial planning goes out the window. Budgeting, paying bills, insurance. Who has time to think about any of that?
That is not surprising. After all, you’ve heard the phrase, “Sleep when the baby sleeps.” But nobody says, “Do the financial planning when the baby does financial planning.” And if you don't do financial planning, eventually, your baby won’t be the only one crying.
Still, there’s no need to panic. You simply need a plan, all of which you can complete before or after your child is born.
Financial planning activity #1: Buy life insurance
Ideally, you’ll do this before your baby is born.
You’re bringing in this wonderful new life, and you’re being told to think about your own mortality. The irony of this situation is not lost on us.
But look, you don’t want anything bad happening to your baby, and having a life insurance policy will ensure that your child is properly cared for, emotionally and financially, if you pass away.
“Typically, a 20 or 30 term policy will do. A financial planner or good insurance consultant will help you work through the numbers on how much benefit to purchase — thinking about covering college, paying off liabilities and/or providing a number of years of living expenses,” says Mitchell Hamer, a financial advisor at Kovitz, a wealth management firm in Chicago.
Don’t delay. You can shop for life insurance while your baby naps. It may cut into your nap time, but you’ll sleep better knowing that your child will be properly cared for if the worst happens.
Financial planning activity #2: Establish your will and trust
Though it’s an uncomfortable topic, thinking about death will ensure that your child lives the best life possible. Again, the irony is not lost on us.
Preferably before your baby is born, you should begin estate planning, according to Cecilia Williams, chief operating officer and chief compliance officer at Halbert Hargrove, a wealth advisory investment firm based out of Long Beach, California.
“You’ll be able to document your wishes concerning who will care for your child and who should be the beneficiary of your assets,” Williams says. She goes on to advise, “A key point to consider if you plan to pass on your wealth to your child: Do you have someone in mind who can help oversee those assets if you pass before your child reaches adulthood?”
Again, don’t delay, though plenty of parents likely will. If you don’t want to spend the money to work with an attorney, there are online legal websites that will help you draw up an estate plan. You could do it late at night on your phone or laptop, while you and your partner try to get your baby to sleep.
Financial planning activity #3: Purchase disability insurance
On the brightside, you may not meet an untimely end. Rather, something so devastating might happen that makes it so you’re unable to work for a living. As bleak of a scenario as this sounds, you’ll take comfort knowing your family will be financially provided for through disability insurance.
“This is usually overlooked in financial plans and can become important for each working spouse,” Hamer says.
Hamer says, provided you aren’t a freelance worker, you can probably join a group disability plan through your employer, which is typically cheaper than an individual policy.
Whatever you do, Hamer says that you should think about getting disability insurance.
“The statistics are staggering — one is much more likely to become disabled in their lifetime than they are to pass away at a young age,” Hamer says.
According to the Council for Disability Awareness, just over 25% of today's 20-year-olds will become disabled before they retire. Accidents aren't usually the culprit, according to the council's website. So what is? The study indicates that back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences from work.
As Hamer said, you may be able to obtain disability insurance through your employer. If you’re the child’s primary caregiver and it’s difficult for you to leave your home, you may be able to set up a phone or Zoom meeting with an insurance broker for more information.
Financial planning activity #4: Add your baby to your health insurance
Good news. This activity is relatively quick and has nothing to do with death or being seriously injured. Since you have a new person in your household, you’re going to want to reread your health insurance policy and bring yourself up to speed on any details included in your policy that pertain to newborns.
You will also typically need to contact your insurer, within 30 to 60 days of your baby’s birth, to let them know to add another person to your health insurance plan.
Other than that, there really isn’t anything else for you to do, but Hamer says that, “understanding in-network versus out-of-network services and providers can be a huge money saver.”
You can start looking over your health policy before your baby is born — which is recommended, given how many distractions you’ll have after the arrival — but you’ll still have to notify your insurance company once your baby is born.
Financial planning activity #5: Take a look at your credit cards
With any luck, your credit cards are paid off, and you have a high amount of credit available as well as several cards that offer cash back rewards on purchases. This is because your credit cards may get a workout. After all, diapers and formula are expensive, not to mention the added cost of daycare.
According to the 2022 "Demanding Change" report from the nonprofit organization, Childcare Aware of America, the average annual cost of center-based daycare in the U.S. is $10,174. These costs tend to be more expensive for babies because they require more one-on-one care.
Maybe you’ve decided that daycare isn’t for you, and you’ll stay at home with your child. Though you’ll avoid the expense of daycare, your budget may need a complete overhaul if you’re planning on living off a single income.
“If you or your partner choose to stop working completely, you should adjust your budget now to determine how you can make ends meet with only one income,” Williams says.
While it may be challenging to budget while caring for a newborn, we highly recommend carving out some time to either personally review your finances or meet with a financial advisor. This can help you save money, not just for this week’s grocery bills, but for future costs like vacations or your child’s education.
Financial planning activity #6: Think about meal prep
Food costs can easily send your budget spiraling out of control. Generally, most new parents are relatively sleep deprived the first few months, which means you may find yourself ordering more takeout or food delivery, both of which are significantly more expensive than preparing meals at home.
Before your baby is born, make a list of go-to meals that you can easily prepare. If you find that you use a specific product more frequently, consider buying it in bulk to save money and trips to the grocery store. Meal prepping and freezing pre-prepared meals will also help you make better nutritional and financial decisions during times of stress.
You should be able to do this if your child has already arrived by enlisting the help of family or friends. Grandparents can make excellent babysitters while you grocery shop for your food items and meal prep. Attending to your nutritional needs will give you the energy you need to be the best parent for your newborn.
Financial planning activity #7: Set up a 529 plan
Herman “Tommy” Thompson, Jr., a certified financial planner with Innovative Financial Group in Atlanta, suggests setting up a 529 plan — as did all of the experts interviewed for this article.
A 529 plan is an investment account for your child’s college tuition. These are better than an interest-bearing savings account because they generally earn more and offer tax benefits, as long as you use the money for tuition and other college-related costs.
“Set up a 529 that can accept online contributions,” Thompson says. “Your new baby, especially the first, will probably get more clothes and noise makers than you will ever need. Some 529 programs have the ability to accept online contributions, which provides a responsible, rattle-free way for grandparents and distant family/friends to send a gift that can grow over time.”
If you’re really frazzled, you could outsource the task of setting up your child’s 529 account to a trusted family member. Or, you could wait until things have settled down to establish one. Remember, though, compound interest is your friend, so the sooner you set one up, the better.
When your friends and family say, “they grow up fast,” they aren’t kidding. It’s a tired cliche made worse by the fact that you are just so tired. But it’s true; one minute you’re rocking your baby back and forth, thinking that they’ll never fall asleep, and the next moment you’re helping them pack and move into a college dorm.
While you don’t want to miss out on any moments in your child’s life, taking the time now to set them, and you, up for financial success will only allow you to share more moments in the future.
About Geoff Williams