6 financial steps couples should consider when having their first child

I recently spoke with a married couple who had not thought about their finances or their shared goals in the many years they had been together. They made a lot of money, received company stock, and were able to consistently maximize contributions to the retirement plan, so they felt that was enough. It wasn’t until they had their first child that they realized they might need to rethink how they were operating. Having a baby can change a lot financially. Here are six money moves to consider when having your first child.

Sit down to discuss shared goals and priorities

Every couple is different when it comes to financial management. It’s not uncommon for me to meet a couple where one is determined to save big and retire early, while the other says he will work until he dies. Regardless of the differences, you may have some goals that you want to work toward together.

I find that often the two biggest financial priorities a couple can agree on when they have their first child are buying a house and saving for college. With many broad goals like this, I find that couples may disagree on the funding philosophy.

Sometimes I meet people who have had to finance their own education and who say that they want to encourage their child to get a job or apply for scholarships or loans so that they can participate a little. I know others who say they want their child to choose whatever path he chooses without having to worry about money, even if that includes private college or graduate school. In fact, I find that two people in the same couple can fall on opposite ends of this spectrum.

If your financing philosophies vary—for example, if you have different feelings about retirement, student loans, debt, or home purchases—it’s essential to talk it out and come to a compromise. Too often I see couples who have avoided money conversations for years, only to find themselves woefully underfunded for their goals.

Set clear expectations

Most couples I meet don’t contribute evenly to each financial goal. And sometimes I even see couples taking individual responsibility for shared goals.

For example, let’s say we have a married couple where they earn the same income, but one person owns a business and the other is an employee of a large company with generous benefits and a large 401(k) match. Their goals are to ensure they have adequate health care coverage, save for retirement, and save for their child’s college education. They learned that they need to save $2,500 per month for their retirement and college goals.

The most efficient path in this case would not be for them both to pursue their own priorities. Business owners generally have to pay much higher health insurance premiums than employees at large corporations and would be responsible for their own payouts if they want to maximize the benefits of their retirement plan. The most efficient path would probably be for the employee to get the big benefits and a generous match, saving the maximum possible ($23,000 in 2024) in his 401(k) and putting both people in the couple on the employee’s health insurance plan. With the excess cash, the business owner can comfortably save that $2,500 per month for college savings.

Invest for their future

Many people only think of a 529 College Savings plan when they think about investing in their child’s future. 529s can be great because they offer Roth-like taxation on investment growth when the 529 is used for qualified purposes. 529s can be restrictive and lead to high taxes and penalties if not used properly.

For more flexibility, couples can consider uniform transfers to minor accounts, life insurance cash values, or standard investment accounts.

Take care of yourself

Whatever your philosophy on student finance, it’s important to still take care of your personal financial needs. When couples have not saved enough for their studies, I sometimes see them paying their tuition fees from their pension fund. It is important to note that while loans can help you pay for college, no one will give you a loan to pay for your retirement.

Reassess your insurance needs

Insurance needs often change when couples have their first child, especially life insurance needs. Think about what your family will need if you die in the next 18 years. Here are some categories to consider in your needs analysis:

• Income replacement
• Paying off debts
• Funeral expenses
• Paying for college
• Transitional income in case your family has to move or your partner has to take leave
• Rebuilding household emergency reserves

Consider speaking with a qualified insurance specialist to assess your needs and find the right type of insurance for your needs.

Create an estate plan

Having an estate plan is the best way to ensure that if you were ever to die or become incapacitated, your child would be with the caregivers you would want with them and that they would have immediate access to the resources that they would need to support a family. comfortable lifestyle. Consider making an appointment with a qualified estate planning attorney to discuss your priorities and develop a plan.

Conclusion

Having your first child is an exciting and life-changing time. By creating a plan around you and your partner’s shared goals and priorities, setting clear expectations, investing in your child’s future, taking care of yourself, reassessing your insurance needs, and doing estate planning, you can set your family up for financial success .

This informational and educational article does not provide tax or financial advice and should not be relied upon as such. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals, whose advice and services supersede any information in this article. Equitable Advisors, LLC and its employees and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations about the accuracy, completeness or suitability of any of the content linked from this article.

Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, doing business in California as Equitable Network Insurance Agency of California, LLC). Financial professionals may only conduct business and/or answer questions in the state(s) in which they are appropriately qualified. Any compensation received by Ms. Jones for the publication of this article is earned separately and entirely outside of her capacity with Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6710637.1 (24/06)(exp. 26/06)