For new parents, having your first baby is a blessing and of course a very exciting time.
However, as most people will reluctantly acknowledge, it can also be an uncertain, frightening time.
As new parents, you want to ensure your baby has the best life possible — which can be expensive. At the same time, though, you don’t want your own quality of life to drop correspondingly. For sure, investing in your baby’s future should be your top priority, but it’s not necessary to break the bank to do this.
Finding a balance among your expenses is just as important as setting aside specific funds for your child’s life. The balance can, at times, feel a bit like walking a tightrope, and this is why finding a good financial advisor is so important.
Why should you hire a financial advisor?
First of all, the most significant reason for new parents to hire a financial advisor is peace of mind. Planning for your child’s future can be very stressful, and there are many different expenses that need to be taken into account.
You may not consider all of them, or you might focus too much on a certain area. For example, many people are surprised when some financial advisors suggest that they save for their retirements before saving up for a college tuition.
Achieving the right balance — making sure that each area gets its ideal amount of attention and finance — is vitally important. Financial advisors have dealt with your exact situation many times before and know what they are doing. You can trust them to help you and your baby achieve the best financial futures possible.
How children change your financial plans
We mentioned college costs briefly above. Saving for future tuition is one of the things that parents stress over the most when it comes to financial planning for their children.
There are a few different options for this, such as an Education Savings Plan (or 529 plan), which is a bit like a 401(k) that can be used specifically to cover tuition costs and is tax-free. Of course, if your child does well in school, scholarships could be an option down the line. And there’s always financial aid.
Still, it is a good idea to save up money for your child’s college education — though this doesn’t have to begin as soon as the child as born. Your financial advisor will be able to explain all of the different options to you clearly so that you can make the best choice.
For not-yet new parents who are planning to start a family someday, it’s a good idea to start saving now. Financial success is all about security and managing risks. Step No. 1 is to make sure you have some kind of fund that you’re slowly building up month by month.
Further, child care can be expensive — especially for parents whose jobs don’t offer maternity leave. So, try setting aside a fund to cover those costs, which will be ongoing and unpredictable during your child’s early years. Financial advisor Tara Siegel Bernard, writing for The New York Times recommends putting money into subaccounts labeled “baby leave” or “day care” for such occasions.
Further, a financial advisor will help you pick out a life insurance policy if you don’t already have one. You definitely should have one because financial success is all about managing risks, and life is very uncertain. If something (God forbid) were to happen to you or the primary breadwinner in your family, you need to ensure that your child has a safety net to fall back on.
The financial advisor will also make sure you fill out a will. In the same vein as life insurance, this is more about making sure your child’s new guardian or guardians are set in stone rather than making sure they acquire your assets (as a new parent, you’re probably tight on money at the moment anyway). If you don’t complete a will, the question of who should get custody in the event of an unfortunate accident or fatal illness could become a complicated legal battle. Taking out life insurance and filling out a will can give you peace of mind, and a financial advisor can explain both of these to you in more depth.
How do I set up a meeting with a financial advisor?
You’ll want to make sure the person you’re hiring is a certified financial planner, or CFP. This will ensure they genuinely know what they’re doing and give the best advice.
Try to avoid financial planners who make some of their money based on commissions.
American Funds recommends, before going into a meeting with the planner you’ve chosen, that you write down a list of questions for him or her, as well as your long-term financial goals. Also, make sure to bring documents related to your accounts — IRAs, 401(k)s, etc. — and any estate planning information you have.
Meeting with a financial advisor and building that relationship over time will ensure you have the confidence necessary to move on to planning out your own finances with less assistance.
Remember, saving funds for your child is an investment in his or her future success. Therefore, the various aspects of this investment should be carefully considered. Don’t think that you can manage all of your finances without a little assistance — most of us don’t have that kind of time or energy.
In the short term, your financial advisor can offer you peace of mind and an objective audit of some financial questions you might not have considered. Over the long haul, he or she will help ensure that the money you set aside for your child is optimally placed and gives your child the best future possible.
Casey Meehan is a writer and small business owner based out of Chicago. You can find him on Twitter at @epicpresence.