Making Cents: We're having a baby (or grandchild)!
By: John P. Napolitano, CFP®, CPA, PFS, MST
Having a child is one of those lifetime experiences that you simply have to live through to get the full force and effect. To call it a game changer would be a massive understatement. Life, as you knew it, will never be the same. Now don’t get all freaked out. I didn’t say it would get worse – but it will be different.
The most obvious change will be to your cost of living. Take a peek at your expecting mom’s registry for a baby shower and you’ll see just how expensive everything from car seats to strollers are in 2018. Ask any grandmother how they spend their discretionary funds and they can tell you firsthand about some of the costs involved.
But there are other costs that may not be so obvious. For example, you now need a set of estate documents. The most basic and necessary would be a will. In your will, you would appoint a guardian in the event of a common disaster that may include both the new mom and dad.
Depending on your asset and liability mix, you may also benefit from establishing trusts. These trusts may be for estate tax savings or simply to protect and direct proceeds from savings or a life insurance policy that may be too large (or too tempting) for a young person to control.
If you own a business, it may be time to see that your business has a succession strategy. When there are new mouths to feed, life can get very stressful if one of the parents can’t work in the business that they own. Your continuity plan needs to address the possibility of a short or long term disability as well as the possibility of pre-mature death.
This is also the best time to assess your personal protection plan. If all you have to protect is your earnings and ability to earn, then make sure that you’ve got adequate insurance. Please don’t use rules of thumb here. Calculate the amount of life and disability insurance that the family will need to live the desired lifestyle. This isn’t the time to be a hero or heroine, and suggest that the coverage isn’t necessary because you’ll simply work harder and make more money if you lose a young spouse. That is both naïve and very difficult to pull off after a catastrophic loss and becoming a single parent.
Calculate these insurance needs on both spouses, even if either is a stay at home spouse. If you lose the ability to have no cost babysitting because you lose a non-working spouse you are going to have to spend money. Include the proper cost of child care and any other services that your spouse may provide into your future needs for purposes of calculating how much insurance you should have.
The biggest future cost may be education. If you can afford to fund for higher education – there is no better time to start than at the birth of a new child.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.