New Baby in the Family? Here’s Some Financial Advice
| Paul Fain, CFP®
In the midst of much trial and tribulation around our country, can I share a personal story on the lighter side of life?
I’m a first-time grandpa. This experience is good beyond my imagination – all the joy with none of the responsibilities!
Still, as a financial planner, I have some advice for my daughter and son-in-law.
Let’s start a college fund for my granddaughter (yes, we would be honored to get it started). I’m thinking about a 529-college-savings plan, such as the investment programs sponsored by Utah, or Virginia, or Tennessee, or another quality plan based on performance, cost, etc. By starting contributions now the account will enjoy 18 years of compounded growth.
With the addition of an adorable dependent, it is time for the new mom and dad to do some estate planning. They need a last will and testament that names guardians, trustees and so forth for the minor. It is also prudent to review and update beneficiary designations on retirement accounts.
Speaking of beneficiaries, it’s time to review life insurance coverage as it probably needs to be increased on both parents in a two-income household. In the unlikely event of a premature death, would the surviving parent want to pay off the mortgage, fund a college plan, and supplement his or her monthly income? Term insurance is the most affordable mechanism to protect the family’s financial security. They should match the coverage to the liabilities, for example, maybe a 25-year term policy to extend the death benefit through the college years.
Wipe that spit-up off your shoulder and listen to me. Perhaps most importantly, it is time to overhaul the household budget. According to the USDA, it will cost more than $200,000 to raise a child to age 17 (but how many teenagers are financially independent by age 18?). That figure, which breaks down to about $1,000 per month, includes costs for food, shelter, child care/education (excluding college), clothing, transportation, healthcare, etc. Young parents may soon be buying a bigger home, a minivan, and enrolling in a daycare program. I did not add the costs of buying and maintaining a pony.
The budget overhaul extends to my household as well. “Snuggie” (aka Grandma) could be a mail-order logistics specialist. Our Amazon account has purchased clothes (“but it will look so cute on her when she is 5”), blankets, toys, a stroller, diapers, and stuff I’ve never heard of, (sigh, you experienced grandparents know how this goes). Honestly though, I wouldn’t change a thing. Our grandbaby girl looked up at me in week two and cracked a smile to melt my heart (of course she was probably just passing gas).
This article was originally published in the Knoxville News Sentinel on February 25, 2021