Financial Planning Tips for New Parents

Having a baby is exciting and nerve-racking - not least because it involves a huge financial commitment. The government estimates that a middle-income family will spend more than a quarter of a million dollars to raise a child until he or she is 17 -- although the true cost of child rearing varies widely depending on parents’ income, savings and goals for their children.

It’s easy in all of the excitement of a new baby and lack of sleep to push aside financial planning, but now is the time to get a handle on certain critical financial aspects.

Here are some tips to minimize the impact of your new bundle of joy on your bank account.

1. Create a savings safety net.

Build a safety cushion of six-to-nine months of savings in case one or both parents lose their income. If you are thinking of transitioning from being a two-income to one-income household, this gives you time to road test and put some money in the bank.

2. Create and stick to a budget.

When your baby is born, your financial picture changes drastically. Now it’s more important than ever to create, maintain and stick to a budget. A well-thought-out budget will be your most valuable tool in managing the family money.

If you already have a budget, you’ll need to revise it to fit your new, expanded family. If you don’t have a budget, create one right now. Consider all the extra costs of raising a child – food, diapers and clothing, child care and increased health care premiums, and figure out where you might need to cut back.

3. Get your paperwork in order.

It’s not fun to consider your own mortality as you embrace new life. But you now have someone else depending on you, so you have to make sure you have family financial matters in order.

Basic estate-planning steps for new parents include:

– Name a person to be the guardian

– Create an inventory of assets and debt and store it in a safe place that someone else can access

– Review and update beneficiaries on insurance

– Prepare a will, health care proxies and powers of attorney

While you’re at it, get a Social Security number for the baby. Most hospitals will provide you with this paperwork, and you need one to claim him or her as a dependent on taxes.

4. Prioritize your retirement savings.

Parents should not shortchange their own retirement funds when the new child arrives. Putting money in a Roth IRA is one way to save for both your future and your children’s because it can be used for both retirement and college. It’s critical to maximize your retirement savings potential while working. Both parents need to discuss how much they want to contribute to college and weigh that with what they can save for retirement.

5. Start saving for college as early as possible.

Many people underestimate the cost of college, but estimates show that a public four-year college is expected to be in the ballpark of a quarter million dollars by 2030. Theoretically you have 18 years to save, so start early. A 529 plan allows you to save for college by allowing contributions to grow tax-free for qualified expenses. Look at the expense of college as a pie that can be broken into three slices. The first slice is funded by a college savings account, the second slice is funded through current cash flow by parents at tuition time and the last slice can be shouldered by the child, who can apply for scholarships, aid or loans as a student.

A new child is a huge responsibility in many ways – not the least of which is financial.

Jane Ensley manages the Enumclaw branch.