Having a baby is an immensely life-changing event. Recently, I spoke about some of the tactical financial things you need to be planning out before you have a baby.
Now, I want to focus on the bigger-picture financial things you should consider when having a baby.
I know this isn’t exactly the sexiest topic to start off with, but life insurance is so incredibly important. Kids are expensive and massively increase your cost of living. And for most families, if something devastating happens to the breadwinner or one of the earners, it can have awful effects on the rest of the family.
What you want to do is make sure you have solid life insurance plans in place. Generally, when I run life insurance analyses for my clients, it’s almost always more than they originally think it should be.
For example, if you make $100,000 per year, that becomes $2 million over the course of 20 years. So it’s absolutely critical to ensure you have a proper policy in place that will cover your family if anything happens to you or your partner.
I believe that all parents should have a short-term disability plan (parental leave) in place for their newborn’s arrival. But you should also look at long-term disability policies. Essentially, this just means that if anything should happen to you in the future that makes it hard or impossible to work, you and your family will still receive a percentage of your salary.
This is a really important piece that’s often overlooked. One of the things I often hear is: “well, that will never happen to me.” And knock on wood, it won’t! But if it does, your best ammunition is to be completely prepared.
Prepare Your Will
Wills are critical documents that tell you exactly where your money is going should something happen to you. But when kids are in the picture, a will also decides who will have guardianship of your children should something happen to you and your spouse.
When you don’t have a will in place, it means that the court decides what happens to your money and your children. While this can work out completely fine, it can also be troublesome if you have family members you wouldn’t want raising your children.
Really look at the people in your life and decide who you would want to navigate any situations you might be leaving behind.
And y’all, I know this sounds like a HUGE amount. Because it is! But if you’re not ready or able to consult with an attorney just yet, there are templates online that you can use to create your will.
In addition to your will, you should also be putting down who has your power of attorney. This means that you’re giving someone the ability to make decisions on your behalf if necessary.
If you’re in your 20s, 30s, or 40s, the majority of your assets actually lie in your human capital — your ability to work. This is a really important piece of the conversation regarding your financial situation and having a baby.
Just like everything else, this is going to be super personalized for you and your family. But some of the things you want to look into and ask yourself about are the human capital assets you provide. For example, if the mom’s in a really high-powered career with longevity and high earning potential, it could be worthwhile for the dad to stay home. Or if you’re both in high-earning careers, it might be better to hire childcare and help.
Really, this is all about weighing your options for earning potential, now and in the future.
I hope that’s helpful for all of the parents-to-be and prospective parents out there! I know it might feel overwhelming, but I promise you can really easily set yourself up for success when you’re having a baby.