“Do you have any financial advice for new parents?”
A handful of friends have asked this question in the past week. The question often relates to childcare expenses or college savings plans, but I usually advise new parents to prioritize the below items before anything else:
- Buy enough term life insurance to provide for your family if you and/or your spouse die prematurely. There’s no “right” amount, so ask yourself what you would want covered if you passed. Your salary of x years? Your spouse’s salary so he/she wouldn’t have to work for y years? Childcare expenses for z years? Payoff a mortgage? College tuition? Other expenses? Add those numbers up and go get some quotes.
- Establish an estate plan, including a revocable living trust and will. The will should appoint a guardian for your children if you pass away while they’re still minors, although the courts do have the final say. The will also directs what to do with assets that were excluded from the trust (or forgotten to be put in the trust, which I see very often!). The trust should help avoid probate for assets placed within it and provide for supervision of the assets for the benefit of the children.
Buying insurance and establishing an estate plan are simple steps, but each does require some time and money. Fortunately, each item can be a one-time decision, which may be a relief for new parents who are completely overwhelmed!
In my experience though, insurance agents are hungry for business and often provide speedy and over-the-top service. And unless there is some complexity, my observation is that most attorneys can draft an estate plan within a couple days of an initial meeting.
These two steps might not optimize your financial life, but they may protect your kids against the worst outcomes.
Frequently Asked Questions (FAQs)
Many of my friends are having kids these days, which means I’m being asked about 529s more than anything else. Below are just a few of the common questions:
- Should I open a 529?
- Which company should I use?
- How much should I contribute?
My answer to all of the above is:
- Are you properly insured?
- Is your estate plan in order?
If not, my advice is generally “Go get properly insured and engage an estate planning attorney. Before investing money for an uncertain future, invest to protect your family should anything unexpected happen.”
The above is educational and is NOT legal or financial advice. Every situation is different and I’m not an insurance agent or an attorney.