“A baby is God’s opinion that life should go on.” – Carl Sandburg, American writer and Pulitzer Prize winner, (1878-1967)
QUESTION: Our daughter and son-in-law announced that they are expecting their first child and our first grandchild! What practical financial advice would you suggest we give to them?
Answer: First, congratulations, and welcome to the wonderful world of grandparenting. Besides forever changing our lives for the better, babies have a way of boosting economic activity. In fact, when we became grandparents-to-be, my online shopping activity increased dramatically. Perhaps a future column should address financial tips for grandparents! For today though, let’s focus on nine ways your daughter and son-in-law can baby proof finances in nine months.
MONTH 1: Establish or fortify an existing emergency fund with three to six months’ worth of living expenses.
MONTH 2: Closely monitor cash flow and establish a budget. Two websites to check out are www.babycenter.com/baby-cost-calculator to help anticipate the costs of having a baby, and www.raymondjames.com/investmentinsights/FinancialResources for savings and investment calculators, a printable budget worksheet and other helpful tools. You may also want to suggest that they consult with a financial advisor. Having a baby is a life-changing event that could affect other goals in their financial plan.
MONTH 3: If both parents work, investigate childcare options. Will Grandma care for the baby, or could they share a nanny with another couple while the baby is very young? Having a plan in place ahead of the big day is vital and arranging for childcare is an essential component. Remind them to check into leave under the Family Medical Leave Act or paid family leave if offered by their employers.
MONTH 4: Many couples wait until after the first trimester to go public and break the news about the baby bump. When communicating the news to employers, do so in a professional way and be prepared to answer questions about an anticipated return to work date after delivery. They may consider telecommuting or job-sharing options if possible.
MONTH 5: Stock up on wipes and dipes! The amount of baby stuff available can be overwhelming. A new car seat, diapers, wipes, clothing and a place for baby to sleep are mandatory. The rest is optional, and they can always save money (and the environment) by purchasing some gear secondhand. Just be sure to research items and check for recalls.
MONTH 6: Have a plan in place for the unthinkable. Review life insurance offered by employers, and then consider supplementing it with a term or whole life policy. Disability insurance is also a good idea. Between the ages of 35 and 65, we’re more likely to become disabled than die. A financial advisor can help guide them toward the coverage that best fits their situation. One last thing: Make a reminder to add the baby to their health plan as soon as possible after birth.
MONTH 7: Update their will. They’ll need to plan for the care of a minor child in the event both parents die at the same time. Work with a trusted financial advisor and qualified estate attorney to make sure all bases are covered. In addition, if there is already an estate plan in place, be sure to review and update documents with the appropriate beneficiary information. This may be time for Grandma and Grandpa to review their estate plan as well.
MONTH 8: Start (or keep) saving! According to the U.S. department of Agriculture, child-related expenses average $12,600 to $14,700 each and every year. If there is extra money in the bank when baby arrives, consider starting a college savings account. Choose from a 529 savings plan or a Coverdell Education Savings Account, among other options. However, don’t divert funds from retirement accounts to a college fund. There are scholarships and loans available for education but not for retirement needs.
MONTH 9: Reap the tax benefits. In 2014, they can claim a $3,950 exemption for having a child, as well as a refundable child tax credit of up to $3,000. They may also want to adjust the amount withheld from paychecks for taxes.
The first year of a baby’s life is happy and hectic. It’s a good idea to get as much done before delivery day as possible so everyone can enjoy each moment. When their little one arrives and the to-do list is checked off, they’ll thank you for helping to baby proof their finances. Stay focused and invest accordingly.
The information contained herein is obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional. This information is general in nature, it is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or solicitation to buy or sell any particular investment. Investing involves risk and the possible loss of principal invested, investors may incur a profit or a loss. Opinions expressed herein are those of the author and subject to change at any time.
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This article provided by Darcie Guerin, CFP®, Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email firstname.lastname@example.org Website: www.raymondjames.com/InvestmentInsights