4 financial “baby” steps to take before you start a family

Parenthood can be one of the most exciting, rewarding, and life-altering experiences of your life. Though you can never fully anticipate the changes that will come with family life, you can do your best to prepare for them. But that preparation involves much more than picking out wallpaper for a nursery or stocking up on baby supplies. Here are four important financial steps you can take to protect your children even before they enter the world.

One thing that’s hard for young parents to imagine is a future where they’re not around for their children. However, a parent’s most important responsibility is to care for and protect their children. For that reason, it’s essential to have a will and related documents even before your children are born. Those documents ensure that if something were to happen to you or your spouse, your child will be protected.

If you don’t have a will in place, I urge you to meet with an attorney immediately to start creating one. The attorney who creates your will should also create other important related documents, such as your health care proxies, living wills, and power of attorneys.

Whoever said children aren’t expensive probably never had children. With parenthood often comes change in employment income, medical plans, housing, childcare, and other ongoing living expenses. One way to prepare for those financial changes is to develop a detailed budget. In creating your budget, determine possible expenses as well as expected income and cash flow. Your budget will be a working document, as you’ll adapt it as your family size and needs change.

Another way to prepare financially for a baby is to have life insurance coverage for you and your spouse. Over the years, I have met many young parents who underestimate the amount of life insurance they’ll need. Life insurance is especially critical for young families who have yet to accumulate substantial assets or reach their peak earning years.

Why is life insurance so important? Imagine if something were to happen to you or your spouse. You’d need to have income to meet monthly expenses, maintain your family’s lifestyle, and set aside money for your children’s future. I advise my clients to ensure they have appropriate coverage for both parents, even if one parent stays at home and doesn’t earn income. If something were to happen to the stay-at-home parent, the working parent would need to either finance childcare expenses, reduce their hours at work, or find a more flexible job that allows them to spend time with their children.

There are many different life insurance plans, from term life to permanent coverage. To determine the option that meets your needs, I recommend meeting with an experienced insurance professional who can help you find the coverage that fits within your budget.

Your child will definitely change your priorities in life. They should also change your saving priorities. If you haven’t committed to a regular savings program, start now — even if you don't have kids yet. The need to save for your children will become increasingly important as they get older.

You can choose from a wealth of savings vehicles — from UGMA accounts to trust accounts and 529 education savings plans. The most important step you can take is to save regularly. You can accomplish this by automating your saving with payroll deductions or automatic investments.

While saving for your child’s future education is important, you’ll also want to build savings in an emergency fund for the unexpected expenses that can happen today. As your family grows, your need to increase emergency savings will as well.

Starting a family will likely be the most exciting and significant event in your life. While you can’t predict where parenthood will take you, you can prepare financially by developing an estate plan, creating a budget, obtaining life insurance, and making saving a habit before your first child is born.

Consider meeting with a Citizens Securities financial advisor to help you develop a plan that can guide you toward your goals.

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