By Simona Covel

 

WHEN OUR SON COLBY WAS BORN, we received one monogrammed baby blanket, three hooded towels and countless words of wisdom about sleeping schedules. But no one mentioned the long-term financial implications of our happy event.

 

Most new parents realize that raising a child is expensive — government figures put the cost at $284,570 for the first 17 years alone, not including college tuition.¹ But we wanted to give our son more than the necessities: food, clothing, health care, a roof over his head. We wanted to create a secure financial future for him, and we didn’t have a clue where to begin.

 

So I decided to do some digging. Turns out there are three really important financial steps every new parent should consider. Devoting time to these three things during the first year of your baby’s life may seem like a challenge — especially when you’re sleep-deprived. But, having done them ourselves, my husband and I are convinced that they were worth the effort. And we’re sleeping better knowing we’ve taken steps to protect our little family.

 

Top 3 tips for first-time parents

Appoint a guardian and an executor. My own mortality was the last thing I was thinking about after bringing a new life into the world. Turns out, I’m not alone. Many people put off creating a will for just that reason, says Jean Y. Kim, managing director, Strategic Wealth Advisory Group at Merrill, who has two young children. But a will is critical for parents of minor children, because it allows you to name the person you trust to take care of your child if both you and your spouse should die.

 

While it was difficult for us to imagine not being here for our son, we quickly realized how important it was to name a guardian. And not just any guardian — the right guardian: Someone who would be able to provide the love and support we hope to provide. Someone who shares our values and can pass them on to him. Someone who can keep our memories alive. Picking a guardian for our son may have been the most important parenting decision we’ve made so far.

 

Almost as important as naming a guardian is naming an executor — the person who wraps up your affairs, pays bills and expenses, and makes sure your property is transferred to those named in your will. A will (and a revocable trust, if appropriate) allow you to stipulate how your assets will be managed and used to see your child through to adulthood. More specifically, you can use your estate plan to outline exactly how and for what purposes your children can gain access to whatever money you may leave, and at what stage in life.

 

The terms of your will can be quite specific: Money could be allocated for private school, to cover the cost of flying to visit grandparents, or even to help the guardian with additional expenses associated with raising your children. But regardless of the details, Kim says, it’s important to start somewhere. “It’s easy to spend so much time trying to get each provision perfect and plan for every contingency that you become paralyzed,” she says. It’s best to get a basic version down on paper and then revisit it every few years to address changes in circumstances.

 

Get your insurance in order. Next, it was time to consider life insurance. For the first time, we took a good, hard look at all that paperwork from our employers’ human resources departments and found that my husband’s employer offered $500,000 in coverage, while I had a little less.

 

Those amounts would probably cover only a few years of lost income, says Amanda Ross, managing director and head of Wealth Management Retirement Sales Support at Bank of America. So we considered what would be required in the long term to help minimize major disruptions to our family’s lifestyle if one of us died. One tip: Don’t underestimate the need to insure the spouse who has less income or stays home. Childcare needs and other day-to-day rhythms change when a parent dies, straining the surviving spouse both financially and emotionally.

 

Don’t postpone college planning. When I was fastening my son’s diapers, sending him off to college seemed light-years away, but I couldn’t think of a better way to help secure his future than to give him a good education. And I knew we’d be foolish not to think about those costs sooner rather than later, given tuition’s steady march skyward. Years from now, if my son chooses to study at a four-year private college or university, we could be facing a bill of $300,000 to $400,000.²

“Those numbers seem so daunting that a lot of people just do nothing,” says Richard J. Polimeni, head of Education Savings Programs at Bank of America. Polimeni, who has two children, one a freshman and one a junior in college, suggests starting with a specific goal in mind.

 

His family, for example, had set out to invest enough to cover four years of tuition and fees at an average-priced private college for each child. Once you have your goal established, you can then figure out what you need to put away each month to help you achieve it. “Even if I had only put aside a portion, that’s money I or my child won’t have to borrow down the road,” he notes. After my conversation with Polimeni, my husband and I set up a 529 savings account³ and started making automatic monthly transfers, and we feel better having taken that step.⁴

 

Since my son’s birth, the rules around 529 plans have changed. In addition to college tuition and certain other college expenses, since 2018 funds in a 529 account can also be used to cover elementary and secondary education tuition up to $10,000 per year. Polimeni tells me that the SECURE Act, signed into law in December 2019, has expanded the definition of section 529 qualified higher education expenses for distributions made after 2018. Students enrolled in registered and certified apprenticeship programs may now treat expenses for fees, books, supplies and equipment required for their participation in programs like these as qualified higher education expenses. Additionally student loan payments made for a designated beneficiary or the sibling of a designated beneficiary, are treated as qualified higher education expenses up to a lifetime maximum of $10,000. (That amount applies separately to the designated beneficiary’s loan and that of any sibling.) These expansions of qualified education expenses for their children could help to preserve parents’ ability to save and invest for their own retirement.⁵

 

My son is now 8 years old, and I also have a 4-year-old daughter named Ivy. Even with two children, my life has a more regular rhythm than it did during those frenzied early days and nights of first-time parenthood. We’re still adding new items to our financial checklist every day — like remembering to calculate the child and dependent care credit come tax time. But with each planning item we address, I feel that we’ve done a little something more for our family. And that leaves us more mental energy to focus on our growing children — and all the possibilities that lie ahead for them.

 

Simona Covel is a financial writer and editor based in New York.