If you’re a new parent, chances are there’s a lot keeping you awake at night. Besides a crying baby, your finances may also need some dire attention.
Raising kids is expensive, and starting a family means you’ll likely have new financial issues to face. Becoming a parent is the perfect time to accomplish 7 must-do financial tasks to set up you and your family for success.
1. Set or update your short- and long-term financial goals.
Many people discover parenthood changes their financial goals. Find a good time to talk to your spouse or partner about what you want to achieve with your money in 1, 5 and 10 years from now. Do you want to take a vacation, become a homeowner, pay for your child’s college, or retire early? Create a document that breaks down the goal amount you’ll need by working backward.
For instance, to accumulate $20,000 for a house down payment within 4 years, you could save $5,000 a year or about $415 a month. Use goal amounts and timeframes that are affordable for you and readjust as your budget changes.
2. Create or update your will and choose a guardian.
Every parent should have a will, no matter how much or little you have to pass on. Without one, you’re leaving your family’s fate to the laws of the state where you live. A will tells everyone who gets your possessions and also protects your family from unnecessary expenses and estate taxes.
It’s also critical to appoint a guardian for your children so someone you trust will care for them if you and your partner die at the same time. Having your last wishes in writing makes a difficult time easier for the loved ones who survive you.
3. Review your beneficiary designations.
Most financial accounts and life insurance policies ask you to designate one or more beneficiaries to inherit your assets or to receive benefits if you die. Beneficiary designations are very important because they typically override information in your will. Make sure to review and update your account and insurance information so it reflects your wishes as soon as you become a parent.
4. Reevaluate your family’s health and critical illness insurance needs.
If you already have health insurance, your children can usually be covered on your plan until they turn 26 years old. Most comprehensive policies automatically cover a newborn for up to 30 days after birth, giving you time to enroll him or her or to shop your coverage.
But if you don’t have a health policy or it would be a financial hardship to cover a child, start by comparing plans and assistance options at the federal marketplace, healthcare.gov.
Also consider how you’d maintain your lifestyle if you, your spouse, or your child became seriously ill. Having critical illness insurance for each member of the family eliminates a potential future financial hardship.
5. Consider how much life insurance you need.
Becoming a parent is a common reason to buy life insurance for the first time. If you already have a policy, consider if it’s enough to meet the needs of your growing family. A good rule of thumb is to have life coverage that equals at least 10 times your annual household income. You may need more depending on factors such as anticipated education expenses, debt balances, and the size and health of your family.
6. Enroll in a retirement plan or boost current contributions.
Using one or more tax-advantaged retirement accounts allows you to invest and cut taxes at the same time. Many employers offer plans, such as a 401(k) or a 403(b), and may also pay additional matching contributions.
If you earn income but don’t have a job with a retirement plan, you qualify for an IRA. And there are even plans designed for the self-employed, such as a SEP-IRA and a Solo 401(k). Make a goal to contribute at least 10% to 15% of your gross income every year to a retirement account.
7. Set up a 529 college savings plan for education goals.
Paying for college is the most common reason parents want to save money for their kids. A 529 college savings plan is another great account with built-in tax advantages.
529 contributions aren’t tax deductible, but withdrawals are tax-free if you spend them on qualified education expenses, such as tuition, fees, books, required equipment, and room and board. Your funds can be used at any accredited school in the country, and even at some foreign institutions.
Accomplishing even a few of these financial tips when you become a parent will go a long way toward creating financial security for your family.