4 Critical Financial Moves for New Parents

September 19, 2024

When you have your first child, your whole world changes. It’s a beautiful experience, and your natural instinct is to protect your child in every way possible, including financially. If you’re a new parent, or if you’re about to become one, there are several crucial financial steps you should take to ensure your child’s needs are met now and in the future.

4 Financial Moves to Secure Your Child’s Future

Your finances will invariably change once you have a child. Along with planning for expenses like baby clothes, food, and furniture, you’ll need to put financial safety nets in place. Taking steps now to prepare for the unexpected will help keep your family protected in case something happens, and it’ll give you peace of mind. The following smart financial moves are key to your family’s security.

1. Insure Them Enroll your child in health insurance within 30 days of birth. Your plan will cover medical costs retroactively, and your child cannot be denied coverage due to preexisting conditions. Insurance providers may access your newborn's records, but they may also request documents like hospital records or a birth certificate.

If you have coverage through your employer or the Health Insurance Marketplace, contact your insurer or Human Resources Department to add your child to the policy. Since a child’s birth is a qualifying event, you can update your policy even outside open enrollment. If you have individual coverage, you’ll need to switch to a family plan.

If adding your child to your policy is too costly, explore options like the Children’s Health Insurance Program (CHIP), which offers affordable coverage.

2. Invest in Term Life Insurance Life insurance provides financial protection for your family if you or your partner passes away. The payout covers costs like funeral expenses and lost income. Both parents should be insured, as a payout for the living parent can help cover childcare and other expenses.

During enrollment, name a beneficiary, but avoid naming your child. Instead, consider creating a life insurance trust to manage the funds until your child is an adult.

When choosing a payout amount, consider how many years of income you want to replace and factor in debts, childcare, and tuition costs. Term life insurance provides coverage for a set period (e.g., 20 years) and pays a death benefit if you pass away during that time. It’s more affordable because it doesn’t build cash value. Whole life insurance covers you for life and includes a savings component (cash value), but it’s more expensive. Term policies are usually the best life insurance option for adults because they’re financially sustainable while offering the desired protection.

3. Create a Legal Will A will outlines your final wishes and appoints a guardian for your child. While not binding in all states, it influences the court’s decision if your child is orphaned. It also details how your assets should be distributed.

To create a will, list your assets, liabilities, and how you want them distributed. Appoint an executor to carry out your wishes and a guardian for your child. Consider establishing a trust to manage assets for your child. A lawyer should review your will if you have substantial assets, are disinheriting someone, or anticipate family disputes.

4. Establish an Emergency Fund

Once you’ve arranged insurance and a will, start an emergency fund for your family. Emergency funds are needed in case of income interruptions and unexpected expenses, like medical bills, home and auto repairs, and veterinarian bills. It will help you care for your child until your finances get back on track. Aim to save enough to cover three to nine months of living expenses.

If you start saving now, you could reach your goal sooner than you think. The following tips can help:

Make regular contributions: Even small contributions add up over time and will get you in the habit of saving. If you save just $10 a week, you’ll have more than $500 by year’s end, and watching your savings grow could motivate you to make larger or more frequent contributions.
Save large or unexpected funds: When you receive a sizeable or unexpected sum of money – like a tax refund, birthday gift, or work bonus – add it into your emergency savings account.
Set up automatic deposits: If you struggle to set money aside instead of spending it, set up automatic savings deposits. Your financial institution or employer may allow some of each paycheck to go directly to your savings account. If not, see if you can arrange automatic transfers from your checking to your savings account once or twice a month.

Plan, Save, and Then Sleep like a Baby

Financial planning can be stressful, especially when you add a child to the equation, but remember that you can count on your local credit union to help guide you into making the right financial decisions for you and your family. TVFCU offers a variety of savings and checking accounts for everyone. If you would like to know more, contact TVFCU at (423)634-3600 or come see us at your nearest branch!

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4 Critical Financial Moves for New Parents

September 19, 2024