Kids ‘R’ Costly!

Try These 9 Smart Financial Moves for First-Time Parents      

By Gail Harlow

ou’ve just survived an arduous, 12-hour labor and  given birth to a beautiful baby boy. The doctor places your son in your arms. Relief, exhaustion, exultation, pride, love—and fear—overwhelm you. You know that your labors have just begin.

     “What hits parents when they look at their baby for the first time is the realization that here is another person for whom they are responsible,” says Reginald Owens, a former vice president at Metropolitan Life and father of seven children." Who will take care of the baby if I'm not here? Will she be proud of me?” These questions and many others keep parents up nights, says Owens.

     To make matters more challenging, often dual incomes are cut in half once baby enters the picture. Editor Hugh O’Neill was “inspired” to become a writer to earn extra income when his first child was born and his wife left her job to take care of the baby. Since then he’s written three books, Daddy Cool, Here’s Looking at You, Kids, and A Man Called Daddy—and his wife (and muse) has produced another child and returned to work.   

     No doubt about it: kids are costly. It takes between $85,000 and $220,000 to raise a child, depending on how many children you have (it really is cheaper by the dozen). That’s not including college expenses!

     Here are nine smart financial moves you and your husband can make to ensure your new family’s financial security—one for each month of your pregnancy.

FINANCIAL BABY STEPS

.  Review your new family’s life insurance coverage: Do you have enough so that, if the major bread-winner (either you or your husband) dies, the death benefit can be invested and will earn enough interest to replace the missing spouse’s current and future monthly income? 

 Chances are the insurance coverage from your employer isn’t going to do the job. Compare prices of term insurance and cash-value policies; a cheaper term policy may give you the extra protection you need at a price you can afford, even though it  won’t accrue in value.

. Buy mortgage insurance. This can be purchased from the financial institution that holds your mortgage, and will be factored into your monthly payments. With it, your spouse won’t have to allocate a sizable chunk of  a life insurance death benefit to secure the roof over his/her head.

. Make sure that both of you are insured. You and your spouse may already be covered by life insurance policies from your employers, but if either of you decides to quit your job and become a stay-at -home mommy or daddy that coverage will end. If you are the major caregiver, you need  coverage so that if something happens to you, your husband will be able to afford to pay for child care.    

. Take out a cash-value policy on your baby, or—better yet—suggest that grandma and grandpop pay for it. “A $25,000 policy that matures when your daughter is 25 will give her a head start on realizing her dreams,” says Reginald Owens, and the gains aren’t taxed until you cash out.

. Check your employer’s disability coverage. If you haven’t already taken advantage of it, sign up now. Insurance statistics say that people are far more likely to become disabled than they are to die.

. Start saving for college tuition today. Projected costs for a year’s tuition, plus room and board, at a private college for the year 2018 are $53,790; for a public college it’s only $20,624 per year, according to The Complete Idiot’s Guide to Fatherhood (Alpha Books). That‘s nearly a quarter of a million dollars if your star pupil attends a private college. So start investing as much as you can as soon as you can.

 While your child is still young, put as much as you can afford to into stocks or growth mutual funds every month. As she approaches college age,  it’s safer to shift the money to more conservative instruments such as bonds or money market accounts.

Tip: When investing in bonds, be sure to time their maturity dates correctly. Investing in an education IRA or the Roth IRA are two other possibilities to discuss with a qualified financial planner.

. Look for tax advantages. You’ll find the financial consequences of becoming a parent aren’t all bad. For instance, don’t overlook line 43 of Form 1040, which gives eligible parents a Federal tax credit ($500 per child before the latest tax overhaul) subtracted from the amount you owe each year.  Also, by claiming your child as a dependent, you can deduct  $2750 (before the recent revisions) from your income. Ask a tax consultant about the the new rules, as well as any state income tax exemptions that might apply.

More good news: If both of you work, you can deduct up to 30 percent of your child-care or day-care costs, depending on your income range, says Cochranville, Pennsylvania, tax preparer Kathleen Arrowood.

. Diversify your portfolio. You know you should do this periodically anyway. Now that you have someone to leave your estate to, plan to leave a large one. “You’ll want to give your kids something to remember you by,” says Owens.

. Finally, draw up a will, or revise your existing one to include your child as a beneficiary. Be sure to name a legal guardian, too—someone who will wholeheartedly accept responsibility for raising your child should both you and your husband die at the same time. It’s also a good idea to allocate  “limited power of attorney” to a guardian in the event that you and your husband become incapacitated or incapable of caring for your child for a period of time.

   Talk to the person or persons you’ve chosen to be sure that they are willing to assume this parental responsibility. Share with them your values, hopes and dreams for your child’s future.

     After you’ve done all of this, you can start thinking about how to teach your child that money isn’t everything.

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Gail Harlow is the Founding Editor of MAKING BREAD magazine.    

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