Financial Strategies For
By: Ginine Castillo
Plan ahead: If you or your spouse intend to
stop working to care for your child, it’s likely your earnings will
drop. If time allows before your baby’s birth, “practice” living on
your new budget to ease into the transition. You should also try to
eliminate as much debt as possible to help reduce monthly expenses.
Adjust your spending habits to free up
needed cash: A childless life-style may have let you take an extra
vacation or treat yourself to regular nights out on the town. While you
may not need to give up every luxury, consider adjusting your living
standard to accommodate the extra expenses you’ll soon have. Ask friends
and family members who are parents to share their own experiences so you
have realistic expectations about the less obvious costs of parenthood.
Start a college savings program early: With
college costs rising faster than inflation, educating today’s newborn
will likely create drastic changes in your personal economic situation,
even if that is nearly two decades in the future. Since there appears to
be little relief in sight for the cost of higher education, you can
realize the urgency of establishing a college fund while your infant is
still in the cradle.
If you start planning early, the extended
time frame allows for a more aggressive investment strategy for the first
several years (to stay ahead of rising tuition costs). But, as college
gets closer, you may want to shift to a more conservative portfolio mix.
Consider investing in a 529 college savings plan that offers an age-based
option if you want an investment strategy that will make these time-based
portfolio adjustments for you.
Maximize your own retirement savings: Taking
financial responsibility for your children shouldn’t take the place of
financial responsibility to yourself. While saving for your children’s
education, you shouldn’t lose sight of your own long-term goals, such as
saving for retirement. If you haven’t made any investments for
retirement yet, consider starting now. If you are already investing for
retirement, continue making systematic contributions to an investment
plan, including a 401(k), 403(b) or other retirement plan, a dividend
reinvestment plan or a mutual fund automatic investment program. You may
also want to consider increasing your contributions if you feel you could
be under-funding your retirement investments.
Regular contributions also provide the
benefits of dollar-cost averaging – a simple but powerful long-term
investment strategy where you automatically buy more shares when the
market price is low and fewer shares when the market price is high. Even
though this strategy does not guarantee a profit or protect against loss
in declining markets, it can decrease your average cost per share over
time if you continue systematically investing throughout periods of low
and high price levels.
Protect your family with cost-effective
insurance: Your newly added
responsibility makes life and disability insurance coverage an even more
vital part of your personal economy than in the past. An accident or
illness that keeps you from working or causes your premature death could
be catastrophic for your growing family. For most people, affordable
protection is available that will help your loved ones maintain their
lifestyle in the event of an unforeseen tragedy and knowing your family is
properly protected may help you sleep better at night, assuming your new
baby lets you.
Get your estate in order: At a minimum, work
with an attorney to make sure you have an up-to-date will with your legal
intentions clearly spelled out. If something changes in your life – such
as the birth of a child – your will needs to be amended by executing a
document called a “codicil.” Remember, if you die without a will, a
court administrator will not only decide how your assets are distributed,
but he or she will also determine guardianship of your minor children.
Even though becoming first-time parents may
seem financially overwhelming, most agree that the joy it brings is well
worth the cost. Keep in mind that you don’t have to manage your personal
economy on your own. A professional financial advisor can help you develop
a plan to secure your family’s financial future, so you can relax and
enjoy the beautiful life you’ve created.