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Financial Considerations of a New Parent

"My son was just born and we want to make sure he's financially set in life. What are the first things we need to start doing on his behalf?"

Congratulations on becoming a parent!!!  As every parent knows, reality certainly hits home the moment we bring home our first child.  Not that subsequent children have a lesser impact, but life sure takes on a different meaning when we first become a parent.  I like your question and am guessing that when you say “set in life” you are not necessarily referring to opening a trust and depositing $10 million.  Instead, I assume you are looking for a checklist of things you absolutely must do to make sure your son’s needs will be taken care of.

There are two critical items that need to be addressed immediately.  The first is that you and your spouse should each put together a will.  There are many important factors in a will, and I am not going to explain all the different pieces.  The most important item right now is to have a will in place that directs who is going to care for your son if you and your spouse should both pass.  Though this is never an easy discussion, it is far better for you to choose the guardian(s) of your son than for your state to choose.

The second item and equally important is to apply for and purchase a term life insurance policy.  How much coverage you need and for how long is up to you.  Of course, unbiased help is out there to help.  This policy will provide financially for your son and your spouse in the event of your premature death.  You and your spouse should purchase policies even if one does not earn an income.  The time and costs associated with raising a child as a single parent can be quite significant.  Therefore, even if you aren’t going to be replacing an income if the “non-working” spouse passes, life insurance is a must to cover for the additional costs that will be incurred.

The previous two items are critical and, in my opinion--non-negotiable.  Another item that is also very important is disability insurance.  Just like life insurance provides financially in the event of a premature death, disability insurance covers you and your family if the breadwinner is unable to work because of a disability.  Statistics show that you are much more likely to become disabled than you are to die.  For that reason, disability insurance is necessary to continue to put food on the table and a roof over your son’s head.

You could also consider contributing to a 529 College Savings Plan to save for your son’s college.  Not everyone has the intention of funding their children’s education, but if this is a priority, the earlier you start the better.  I have mentioned this in other posts, but it is worth repeating that if you are not on track to funding your own retirement, then I strongly recommend taking care of your own retirement before trying to save for your children’s education.  You can always borrow for college, but no institution is going to lend you money for your retirement.

I also want to take the liberty of suggesting what may be obvious to most people, but it bears mentioning.  Other than protecting you and your family from the unexpected, the best thing you can do for your son is to teach him your values towards money—assuming those are good values.  Teach him that he can’t have everything he wants.  Teach him that he must work to earn money.  Teach him how to save money.  Teach him how to invest and the miracle of compounding.  Perhaps, as a fee only financial planner, I am more open about money than most, but in addition to demonstrating good money habits, we really need to start having conversations with our children about money.  Of course, this might be a little further down the road for you.  Enjoy every step along the way!!!