As you probably know by now, I became a dad last summer. The birth of our daughter, Frankie, changed our lives forever for the better. Along with the joy, wonder, and purpose it has brought to my life, it has also added a whole new level of financial responsibility. As a Certified Financial Planner®, I help my clients with their financial plans on a daily basis. I’ve even guided lots of new parents on the steps to take when they have a new child. However, with the birth of Frankie, it was time to take my own advice and put together a plan.
Here are the five key financial moves I made after welcoming Frankie to the world:
1. Opened a 529 College Savings Plan
One of the first financial steps I took was setting up a 529 plan to start saving for my daughter's college and K-12 education. A 529 Plan is a tax-advantaged account that allows investments to grow tax-free. We will be able to take the money out to help Frankie pay for college or even some K-12 expenses. Recent changes to 529 Plan rules also will allow Frankie to roll some of her 529 plan money over into a Roth IRA if she doesn’t end up going to college or if she gets a scholarship. I made an initial contribution and set up automatic monthly deposits to ensure consistent savings. I also made sure that the grandparents and other family members knew about the 529 plan. A 529 plan contribution is an impactful gift idea to share with others for her birthday and other holidays! Even though she’s still years away from college, we got started right away so that time and compounding interest can work in our favor.
2. Upped My Life Insurance
I had some life insurance before, but having a baby meant new responsibilities and another person dependent on my income. With that in mind, I did an insurance review with myself. Because I wanted to make sure that Frankie would have a good lifestyle and would be able to go to college even if I passed away early, I decided to apply for additional life insurance. I already had permanent cash value life insurance, so I applied for a 30-year Term insurance to supplement this. This policy will provide coverage during the years Frankie might be financially dependent on me. If you are healthy and young, you might be surprised how much term life insurance you can get for relatively cheap.
3. Purchased a Juvenile Life Insurance Policy for My Daughter
I also decided to purchase a juvenile life insurance policy for my daughter. These policies offer lifelong coverage at a low cost and build cash value over time. This cash value can be used for anything Frankie decides: K-12 expenses, college expenses, her first down payment, or even to help her future retirement! Additionally, securing coverage while she is young ensures she has at least some insurance protection regardless of future health conditions.
4. Created an Estate Plan (Trust, Will, FPOA, and HPOA)
I often tell my clients to create an estate plan that includes a trust, will, financial power of attorney, and a healthcare power of attorney. Once Frankie was born, it was time to take my own advice and create these important documents myself. One big part of your estate plan is deciding guardianship provisions in case something happens to my spouse and me. Creating a trust also helps ensure that Frankie is financially taken care of if my spouse and I pass away. It also will help her avoid having to go through the dreaded probate court process. Along with creating these new documents, I also updated the beneficiaries on my life insurance policies, retirement accounts, and investment accounts. Everyone should have an estate plan, but once you have a child, the importance of creating these documents is multiplied.
5. Adjusted Budget
A new addition to the family means a change in our budget. Now we must include costs of baby food, baby clothes, diapers, wipes, etc. We also need to factor in 529 plan savings, increased life insurance costs, increased health insurance costs, and the premium for her juvenile policy. As Frankie gets older, her needs will constantly change, and our budget will need to change with it. My wife and I continue to meet regularly on our “Money Dates” to look at our budget and make adjustments. This was always important, but with a constantly changing and growing child, consistently reviewing and updating the budget is paramount.
Final Thoughts
Welcoming a child is an incredible milestone, and taking proactive financial steps early on can provide long-term security for your growing family. By planning ahead, you can build a strong financial foundation that supports your child’s future and gives you confidence.
If you have any questions about these strategies, schedule a meeting with me or your financial planner to tailor a plan to your family's unique needs.
The opinions are those of the writer, and not the recommendations or responsibility of Cetera Investment Services LLC or its representatives.
Cetera Investment Services LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business.