Woah, Baby!

by Erin Baehr, CFP®, EA
Shawnee-on-Delaware, PA
http://www.baehrfinancial.com/

We are so thrilled to have welcomed our new grandson into the world, just a few days ago! All of us in the Baehr family are in new baby heaven. While his mommy and daddy are thinking about diapers and feedings, my mind wanders to the financial part of being a new parent. Because of my company's name, people often ask if my family members work in the business, and while they do from time to time, I explain that I included "Family" in the name because family is what I'm all about. One of my greatest joys is teaching young people about finances, especially when a blessed addition to the family suddenly makes things a whole lot more complicated financially.

So in the spirit of my recent letter to my son Andy, here is some advice for our new parents to think about- when the new baby fog lifts a bit of course.

No doubt right now you are buried (maybe literally) in diapers, toys, and feedings, so taking care of household paperwork is hardly a priority. But now that you have that precious little one, you're going to need to take care of a few things. First on your list is a will- especially naming a guardian should something happen to both of you. There’s a great book called Wear Clean Underwear by Alexis Martin Neely that can help you think it through. Alexis is an attorney and also has a website called www.KidsProtectionPlan.com, where you can print out a document to name your guardians. It is not a substitute for a properly drafted will, but a tool to guide you in the process.

Life insurance may be something you haven't thought about, but let's talk about getting some coverage, ideally a policy you own outright. If you are young and healthy, term coverage is a cheap way to give your family priceless protection, should something happen to you.

Most parents think of saving for college as something they should do right away. While I don’t discourage saving for college, your first priority should be to establish an emergency fund for your family, maximize your retirement savings, and then start saving for college. It’s the old “put your oxygen mask on first” theory. It’s much easier to draw from your own funds to pay for college than it is to use college funds to pay for a family emergency. That said, there's nothing wrong with suggesting family and friends contribute to a college account instead of buying toys for birthdays or holidays.

Think long term when it comes to how you define your child’s standard of living. What I mean by that is, will you be able to keep your child in the lifestyle to which she has become accustomed when he is a teenager? A parent of any teen will tell you, the cost of their “care and feeding” increases exponentially as they get older. Be careful what habits you (and their grandparents) instill; a dozen pair of toddler shoes costs a whole lot less than a dozen pair of Nikes.

Take advantage of flexible spending accounts at work if they are available. With these plans, because you are able to use pretax dollars for out of pocket medical expenses. The trick is you’ll have to choose an amount to defer to the account prior to the start of the new calendar year. It's a use it or lose it system, so it's better to estimate on the low side. These accounts are available for child care expenses also, and may save you more taxes than the child care tax credit; you'll want to check with your tax advisor (me!).

Please kiss that beautiful baby goodnight for me!