I recently spoke with a married couple who hadn’t considered their finances or their joint goals for the many years they’d been together. They made plenty of money, received company stock, and were able to consistently maximize retirement plan contributions. So, they felt like that was enough.
It wasn’t until they had their first kid that they realized they may need to take a second look at how they’ve been operating their finances. Having a baby can create a lot of financial change. Here are six money moves to consider when having your first child.
Sit Down To Discuss Joint Goals And Priorities
Every couple is different when it comes to financial management. It’s not uncommon to see a couple where one person is set on saving a lot and retiring early and the other plans to work until death. Regardless of your differences, you may have some goals you’d like to work toward together.
I find that oftentimes, the two biggest financial priorities a couple might agree on when they have their first child are purchasing a house and saving for college. With many broad goals like this, couples may not be on the same page about funding philosophy.
Sometimes, I come across people who had to pay their own way through college, and they say they want to encourage their child to get a job or apply for scholarships or loans to have some skin in the game. I know others who say they want their children to pursue whatever path they choose without worrying about money, even if that includes private university and graduate school. I even find that two people in the same couple may fall on opposite ends of this spectrum.
If your funding philosophies vary, like you have different feelings toward retirement, college funding, debt, or home purchases, it is essential to talk through them and come up with a compromise. Too often, I see couples who have avoided money conversations for years only to find themselves woefully underfunded for their goals.
Set Clear Expectations
Most couples I meet do not contribute evenly to every single financial goal. And sometimes, I even see couples individually taking responsibility for joint goals.
For example, let’s say we have a married couple where both partners make the same income. But one individual is a business owner and the other is an employee of a large company with generous benefits and a large 401(k) match. Their goals are making sure they have sufficient healthcare coverage, saving for retirement, and saving for college for their child. They find out that they need to save $2500 per month to meet their retirement and college goals.
The most efficient path wouldn’t involve them both covering their own priorities in this case. Business owners generally have to pay much higher health insurance premiums than employees at large companies. Business owners also would be responsible for their own match payout if they wanted to maximize their retirement plan benefits. The most efficient path would likely involve the employee with the great company benefits and a generous retirement match saving the maximum possible ($23,000 in 2024) to their 401(k) and putting both people in the couple on the employee’s health insurance plan. With the excess funds, the business owner can comfortably save that $2,500 per month toward college savings.
Invest For The Child’s Future
Many people just think of a 529 college savings plan when they consider how to invest in their child’s future. A 529 plan can be great because it offers Roth-like taxation on the growth of investments when it is used for qualified purposes. Yet 529s can also be restrictive and result in hefty taxes and penalties when they are not used properly.
For more flexibility, couples might consider Uniform Transfers to Minors Accounts, life insurance cash values, or standard investment accounts.
Take Care Of Yourself
No matter what your philosophy is on college funding, it’s important to still take care of your personal financial needs. When couples haven’t saved enough for college, I sometimes see them pay for tuition out of their retirement funds. It’s important to note that while you can pay for college with loans, nobody is going to give you a loan to pay for your retirement.
Reassess Your Insurance Needs
Insurance needs often shift when couples have their first child, particularly life insurance needs. Think through what your family may need in the event that you die in the next 18 years. Here are some categories to consider in your needs analysis:
- Income replacement
- Paying off debts
- Burial expenses
- Paying for college
- Transitional income in case your family needs to move or your partner needs to take time off work
- Rebuilding household emergency reserves
Consider speaking with a qualified insurance specialist to assess your needs and find the right type of insurance.
Make An Estate Plan
Having an estate plan in place is the best way to ensure that if you ever die or become incapacitated, your child would be with the caregivers you would want them to be with and they would have immediate access to the funds they would need to maintain a comfortable lifestyle. Consider meeting with a qualified estate planning attorney to discuss your priorities and put a plan in place.
Conclusion
Having your first child is an exciting and life-changing time. If you make a plan around you and your partner’s joint goals and priorities, set clear expectations, invest for your child’s future, take care of yourself, reassess your insurance needs, and make an estate plan, you can set your family up for financial success.
This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6710637.1 (06/24)(exp. 06/26)
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