SMART MONEY MOVES WHEN YOU’RE HAVING A BABY
I write today from the hospital, as my wife is taking a nap. She started labor at about six AM this morning and it’s been a smooth ride all day (epidurals are a wonderful thing). I thought I would make use of the time while we wait to write about whats on my mind. Today, my mind is all about babies. I’m really not an expert in babies, or anything kids for that matter. I try my best, but it is a work in progress. What I am an expert in is money. So here are three money moves you should make when you find out you’re expecting.
Check your life insurance (buy some if you need to)
If you don’t have insurance yet, you need it. Its vital, and term insurance is probably way cheaper than you think it is. I am a 30 year old male in good health, and I pay $31 a month for $1,000,000 in coverage.
There is quite literally no better, or no more important time to buy life insurance than when having a baby. All of the sudden you will have one more person depending on your ability to earn a living. I recently wrote an entire post on life insurance, including what kind you need, and what kinds to avoid. I only recommend buying term insurance. Every other kind, pays the agent a lot more than it will ever pay you. There are two main ways to determine how much you need; Income replacement, or need based.
Income replacement is the simple method. As a rule of thumb the average person needs about 10-12 times their annual income. Look to purchase that amount of insurance on either a 15 or 20 year term.
The needs based method involves taking a hard look at what life would be like for those left around if something happens to you. That means different things to different people. Things to think about include; debts that you would want to pay off, mortgage, auto, or credit card (student loans are cancelled at death so don’t worry about those). What will college cost in 18 years, and do you want to leave any money to pay for your children’s tuition. How much money will your spouse/family need to get by for a few years until things go back to normal. This category is much more involved, but will ultimately lead to a much more accurate amount of insurance.
The final thing to consider with the amount of insurance you’ll need is that most insurance offers discounts at certain amounts of coverage. They are referred to as rate bands and they generally occur at increments of $250,000. So if you determine you need $700,000 of coverage it may end up costing the same amount to get $750,000. It’s at least worth checking.
If you don’t have insurance, or you think you may need more. Or if you all of the sudden just realized that your whole life policy may not be the best fir for you, give me a call. We can set you up with a term policy without having to go through a sales pitch for permanent garbage insurance.
Open a college savings account
You may have heard that college is expensive. You yourself may have some student loans hangin around that may range anywhere from pesky to catastrophic. I’ll let you in on a little tip to make the college experience much less painful when your little one heads off to school. Start saving for it now.
Most every state offers some sort of a college savings plan. They are known as 529 plans, and they offer some great tax benefits. They function similarly to Roth IRA’s, in that money grows tax free as long as it is eventually used to pay for education expenses. In Utah we are lucky because our state sponsors one of the best plans, known as the my529 plan. It offers great investments at extremely low costs.
The Utah plan also has some over the top tech as well. One of the more recent features aded to the plan is the ability to generate a special gift code. You can provide that code to family members, and they can make gifts directly into your child’s account free of charge, all on their phone, and paying with and card they want. It’s an incredibly easy program.
If you aren’t in Utah, I have good news for you, you can still use the plan. There is no requirement to use the plan of the state you live in. If you have any questions about 529 accounts, or would like help getting one set up, We are more than happy to talk. Balanced Capital partners with the my529 plan to help our clients save for college. We offer our help setting up and managing a 529 account free of charge.
Begin saving for your healthcare costs
You will be so so glad you did this. Having a baby is such a special moment, and I really hope you don’t sour the experience by wondering how to pay the impending bills.
If you have health insurance I recommend simply dividing the out of pocket max, or deductible of your plan, by nine, and putting that much money aside every month. Then when baby comes you simple write a check and pay the bill from the money you already set aside.
If you are in a position to save even a little bit more, I also recommend doing that. It’s likely your new baby will have at least a few bills that you’ll be adding on. This works even better if your health insurance offer an HSA account. Then you can be putting away tax free money to use towards the bills.
If you DO NOT have heath insurance you will want to look into if any of the hospitals in your area offer pregnancy packages, sometimes called stork packages. ITs a way for you to pay one flat fee for all of the necessary services involved with having a baby. You can also shop around a bit and find ultrasound centers that may offer similar services as the hospital for significantly less money.
If you are currently uninsured I would also recommend you look into the possibility of joining a cost sharing program. I personally use christian healthcare ministries, and they have been great in helping pay medical and hospital bills.
Get a will in place
Drafting a will is one of the more unpleasant experiences you can have. Sitting at the kitchen table discussing your untimely death is not fun. However, like everything else on this list, it is a must do. For simple situations there are many easy and inexpensive online will making applications that can get you taken care of for under $100.
Review beneficiaries of your accounts
This goes along with number 4, and you may as well take care of it at the same time. Take a quick look at the beneficiaries of your investment and retirement accounts, as well as the beneficiaries of your life insurance. This shouldn’t take more than fifteen minutes.