After the birth of their first baby, new parents are often busy feeding, changing, and rocking their new child to sleep. However, it is important that new parents take time to secure a healthy financial future for their growing family. Here are three important tasks that new parents should add to their to-do lists.
1. Open a 529 Plan
With college expenses on the rise, it makes sense to start saving for your baby's education as soon as possible. A 529 plan is a tax-advantaged savings account that allows you to save for future college expenses.
You control how the money is invested; however, for the best returns, consider investing some of your contributions in stocks. Though stocks are risky, they have higher potential returns than other options. Consult a financial advisor to find a mix of investments that suits your comfort level and investment horizon.
Other people, such as grandparents, can make contributions to a 529 account. You may also deposit cash gifts that your baby receives into the account.
2. Check Your Life Insurance Policies
If you don't currently have life insurance, now is the time purchase a policy. Life insurance is an important product to ensure that your family does not struggle financially in the event of your death. Ideally, you should have enough life insurance to replace your income until your child is 18. Some parents also include estimated college expenses when deciding how much life insurance to buy.
Term life insurance is one life insurance alternative. The policy lasts for a specified duration and the premium remains the same for the duration of the policy. However, the policy does not accumulate a cash value. Premiums are typically very affordable.
Whole life insurance functions as a hybrid savings/insurance product. The policy has a guaranteed payout, and your premiums earn a certain cash value over time. One downside of whole life insurance is that the premiums tend to be higher.
Selecting the right type of life insurance can be tricky. When in doubt, meet with your financial advisor for recommendations concerning your policy and coverage levels.
3. Examine Your Retirement Savings
Even though it may seem years away, now is the time to examine your retirement savings and make sure your contributions are sufficient to reach your retirement goals. When you are older, you don't want to have to depend on your child to support you.
As a new parent, it is easy to spend money each month on clothes, toys, and activities for your baby. However, it is important to make sure you are saving enough for retirement before spending your extra money on non-essential items. By doing so, you increase the likelihood that you will have the money you need to retire.
For more information and help with planning for the future with a new child, contact a professional financial advisement service, such as Harwood Financial Group.