My wife and I had our first child in May. The moment they let us take our beautiful daughter home from the hospital without a nurse to guide us was when we realized the newfound responsibility that a child brings!
For the past nine years working as an advisor, I have been helping others plan for many of the important events in their lives, including marriage, children, retirement and leaving a legacy for their family. As I enter a new stage myself, I thought I would share some of the financial steps I took to help secure the financial future of my family.
Create a will and contingent trust. This is one of the most important first steps. Choosing a guardian for your children helps make sure they are raised by someone who you think will share the same values. A contingent trust helps ensure that the money your child receives from all of your hard work and planning is distributed according to your wishes instead of giving them complete control over everything the minute they turn 18.
Update beneficiary forms. Make sure you double check all of your retirement plans and insurance policies so something doesn’t fall through the cracks. Many accounts with beneficiary designations never pass through your will, so it is important that these are also updated.
Begin saving for college. There are various options available. You should consult a tax advisor and financial advisor to help determine what is best suited for your family’s financial situation. I opened a 529 plan for our daughter. The money in this plan can be used at almost any accredited higher education institute in the world.
Purchase life insurance. My wife and I both increased the amount of life insurance we have. We did a combination of term and permanent insurance to make sure we have the total amount we need at a price we can afford.
Buy disability insurance. When you are young, your future earning potential is your biggest asset. Get as much disability insurance coverage as you can to comfortably cover your income if you get sick or injured and can’t work. A disability lasting longer than three months is much more common than you think.
Consider a small whole life insurance policy. I purchased a policy on my daughter. This accumulates tax-free savings and has a guaranteed purchase option, which gives her the option to purchase additional insurance when she is an adult, regardless of her health at that time.
Look into a dependent care FSA. Many companies have these plans in place and they are a way to pay for some of your childcare costs with tax-free money. It is a “use it or lose it” design, so you want to make sure you will be spending at least the amount you elect to have withheld.
My aim as an advisor is to help families preserve wealth through multiple generations. These are some of the first steps you can take when you have a child to make sure you are on the right track to do that.