Make Way for the Stork: 5 Financial Steps When Planning for Baby

CFP Board Consumer Advocate Offers Financial Advice for Expecting Parents

Much comes with preparing for the arrival of a baby: making sure you have a fully-stocked supply of diapers, scheduling endless doctor’s appointments and prenatal classes; picking out cribs. As important as it is to be physically, mentally and emotionally prepared, it is vital that new parents have a financial plan before their family grows.

Certified Financial Planner Board of Standards (“CFP Board”) Consumer Advocate Eleanor Blayney, CFP® provides guidance on preparing for the arrival of a new addition to a family.

“Judging from the new parents I’ve counseled one, two, even five years after the child’s birth, the only ducks in a row are the ones they put on the walls of the nursery.  They certainly aren’t the financial ones,” says Blayney. “The reality is that many young couples have never done much financial planning before they have kids, and have little idea of what exactly is at stake.”

In the latest installment of CFP Board’s “Let’s Talk Planning” blog and its “Financial Planning is for Everyone” series, Blayney shares five important financial steps for expectant parents to put on their “countdown-to-baby” lists.

1. Push your sights beyond your due date, and get an idea of the annual costs of raising your child.  Use tools offered by organizations like the U.S. Department of Agriculture to get an estimate of the incremental costs of parenthood in various categories, such as housing, clothing, and transportation. Create a budget reflecting these costs. 

2. Determine what insurance coverage you will need.  Be sure to do your research, starting with health care coverage, to make sure your child is covered on your policy from his or her date of birth. Life insurance will ensure that your child is provided for if you or your spouse or partner dies. Lastly, disability insurance will help to cover the loss of income in the event of an illness or accident that prevents you from working and providing for your family. 

3. Get estate planning documents in place or up-to-date.  Even if you have very little in the way of assets, you need a will to name a guardian for your child should anything happen to you and your spouse or partner. Additionally, you may want to set up a trust, either separately or as part of the will, to hold these assets at least until the child is of legal age.

4. Review and revise all beneficiary designations to include your child.  Often you will want your child to be a contingent beneficiary on life insurance or retirement accounts, naming your spouse or the child’s guardian as the primary beneficiary.  But because a child cannot legally own assets until he or she reaches either 18 or 21 (depending on your state), you will want to name the trust as part of your estate plan.

5. Set up a custodial account, in addition to a trust account for your child.  This account can be used to hold assets for the benefit of your child, as well as be named as a beneficiary of a life insurance policy or retirement plan, and will serve as a great holding place for any money gifts from grandparents and other doting family members or friends. There are also tax advantages to this type of account.

“As this list makes clear, there is a lot of work to do to get financially ready for baby. But it doesn’t necessarily have to be painful or exhausting,” says Blayney. “Talk to a CFP® professional who can help you through the planning process and deliver the best possible financial future for your new child.”

ABOUT LET’S TALK PLANNING

“Let’s Talk Planning” is a blog by CFP Board Consumer Advocate Eleanor Blayney, CFP®, with posts each week with practical financial planning tips for consumers, as well as insights into the latest developments at CFP Board.  In addition to offering counsel on timely and evergreen financial planning topics, once a month Blayney will remind readers that “financial planning is for everyone,” with tips for consumers of all ages and life stages.