5 Financial Things to Do After Having a Baby

The stork makes about 11,000 deliveries a day.  Alongside the elation of having a child, these parents ask themselves: What now?

(My friend, Mandarin Mama, a former financial advisor, wrote an excellent article about the financial things you should do after having a baby.  With her permission, I thought I’d remix it with my own thoughts.  I’ll grade myself on her advice and share additional thoughts.  Go here to check out the full, unaltered post:  Financial Things You Should Do After Having a Baby.

I have lots to say about Mandarin Mama, also a mother of 4, but since she’s writing a guest post for JMC, I’ll save those words for then.)

1) Update/Create a Living Trust or Will

JT:  After you pass, how do you make sure that what you want will actually be done?  How do you know that your 1st child will actually get those mismatched socks you set aside for her?

Enter something called “probate.”  Probate is a legal process that helps administer these matters after you pass.  Sound good?  Except that it’s a long, costly process.  So, you typically want to avoid it if you can.  Mandarin Mama, since you brought up this gloomy topic, I’ll let you take it away.

Mandarin Mama:  I know.  I’m a morbid sort.  But believe me – your loved ones will appreciate the forethought and time you took to make sure your assets were titled correctly, as well as included all your progeny.

Wills detail where and who gets your stuff, but Living Trusts go a step further and bypass probate. Furthermore, they can detail who will assume guardianship of your children, who will be the trustee over your assets should you die before your children are legally able to manage their assets, as well as whole slew of other handy details that make your financial life easier.

Remember: probate can take at least 60-90 days and often times, much longer (not to mention, you have to pay probate taxes). Bypassing probate is super important when your children may need to access funds in order to cover their living expenses.

  • Make sure your will/trust include ALL your children.
  • Make sure you actually title your assets in the name of your trust.

It makes zero sense to have a living trust but not have any of your assets in it. That just means you wasted your money on lawyer fees without any of the benefits of their lawyering.

JT’s Grade:  C.  We set up our will and living trust after Zack was born, so “A” for that.  But, I’m not sure if we updated it for Liza, so “F” for not staying up to date, which averages out to a “C” in this category.  Before Liza, when we travelled without our children, we would send our executor and guardian our attorney’s contact information in case something happened.  But we didn’t do that for our last trip to Greece.  Again, we dropped the ball.  Poor Liza.  

2) Update your beneficiaries.

JT:  It’s an interesting thing: New life forces us to think about sickness and death.  But when you focus on these matters now, you minimize your work when you really need it.  Mandarin Mama, what else should we consider?

Mandarin Mama:  Whether they be IRAs, Roth IRAs, 401(k)s, life insurance, Transfer on Death accounts – WHATEVER. If it has a beneficiary, make sure your newest child is added to the beneficiaries.

The possibility that my children may think I purposely disinherited them from any of our accounts versus just being an idiot or procrastinator or just a forgetful human makes me so sad. No child should be cut out of their inheritance due to stupidity on the part of their parents.

It’s a pain, I know. Lots of forms to sign and social security numbers to look up. I get it.

Do it anyway.

As soon as possible. One never knows the future – and though morbid, better safe than sorry.

JT’s Grade:  B.  Here’s one area I need to improve:  I have like 20 different investment accounts and it’s a puzzle accessing them.  Some I haven’t looked at in years.  While I think my accounts have been updated to include Liza, I’m not sure.  However, I’m certain my larger accounts have been updated.  Poor Liza.  Notice a theme here?  

3) Open up a savings/brokerage account and/or a 529 college savings account for your child.

JT:  A 529 Plan is a savings account intended to help you fund your child’s college education.  The biggest benefit is that investment gains from this account aren’t taxed, which is mondo.  Removing taxes from your investment gains is like giving it steroids — just watch it grow!  Plus, for 34 states (and D.C.), you get a tax deduction or credit.  Go here to see which states offer what.  Mandarin Mama, any tips on how to fund a 529?  

Mandarin Mama:  Again, opening accounts is easy; funding them is harder.  Fund the accounts, too.

Right after a child is born, I always deposit any gift cards or financial gifts in their account right away. (For gift cards, if someone gives my kid a $20 to Target, I will deposit $20 into their account and use the Target gift card however I want.)

I also transfer some “seed” money to get the account going as well as deposit any gifts they get throughout the year. I also set up their 529 plans with an automatic monthly investment. This way, I build in saving automatically and don’t have to remember to do it. (If I waited until I remembered, I would never save any money.)

I realize that not everyone has the luxury or benefit of people giving gifts or even having excess funds to save for their kids. Even so, I urge you to open up the accounts anyway. You never know when people are generous and kind during birthdays, graduations, and holidays. It is always better to be prepared. Plus, even if you can only sock away $10/month, that is still better than nothing.

JT’s Grade:  A.  To account for the immense rise in tuition, we’ve consistently funded our children’s 529 plan and enjoyed the tax benefits.  As a result, my children’s 529 plans have outperformed any of our other accounts.

4) Update your benefits.

If you have health insurance – ADD YOUR NEW BABY. Even if it is no longer your company’s open enrollment period, a new baby (whether through birth or adoption) is considered a life changing event and you usually have 30 days after birth/adoption to add your child to your health insurance.

If you don’t remember to add your child, then you will have to wait until your next open enrollment period before you can do so. Depending on when that is, you would have to pay for all the well-baby appointments and immunizations out of pocket and just pray your child doesn’t get sick or hurt the first year.

Save yourself the worry and the potential financial disaster. Enroll your child in your health benefits.

If you have other benefits at work that they qualify for, by all means, add them to those, too.

JT’s Grade:  A.  You walk around in a thick cloud the first few months of your baby’s life.  The sleep deprivation.  The overwhelming responsibility.  But for each child, I somehow mustered enough clarity of mind to add them to my insurance plan.  

5) Get life insurance or make sure your life insurance is enough.

JT:  This is heavy stuff.  Remind me not to invite you to my next party 🙂

Mandarin Mama:  Look, I get it. I’m obsessed with untimely demises.

People always complain that life insurance is paying for something that won’t likely happen. But you know what? We pay for car insurance and hope to never use it. No one complains about that. (Well, that and it’s illegal to drive without car insurance. It’s thus far, not illegal to be alive without life insurance.)

Anyhow, my point is, if you are the primary breadwinner for your family and you die, how will your family provide for their living expenses? If you are one of the breadwinners, how will your family make up the difference in income? And if you are the SAHP (stay-at-home-parent), how will your family pay for the child care services you provide?

Even if you live modestly and have a lot of savings, how long will your savings last?

And right now, I really want to address the SAHP.

Look, I know you can always go out and get a job. I am obviously not commenting on our abilities to work and get well-paying jobs.

But to do so immediately after your spouse dies? While taking care of grieving kids and household stuff and paperwork and the business of the dead?

That is much harder.

And the last thing you want to think about after your spouse dies is how much of a hole you are burning through your savings while trying to find a job and sending out resumes and going on interviews while you and your children are grieving.

That sucks.

Furthermore, even if you, as the SAHP get a job, you will either have to accept a lower paying job in exchange for flexibility in your work schedule to take care of your children. Or, you have to pay for someone else to take care of your children. Either way, there is a monetary outlay that eats into your income.

Also, life insurance through your employer is great and all, but you need life insurance independent of your employer.

Why? Because if your employment terminates, so does your life insurance. And then, when you re-apply for life insurance, you will only be older and more likely to be in worse health.

Oh, and if you get a large amount of life insurance, (eg: $1 million), get multiple policies. That way, if you have a financial difficulty or you no longer need quite as much life insurance because the kids are grown or your savings are much larger, you do not have to cancel the entire amount only to re-apply when you are older and likely to be in worse health and have higher premiums (after all, the older you are, the closer you are to dying).

So, if you wanted a total of $1 million coverage, get two $500,000 policies. That way, if your financial situation becomes more volatile or you no longer need that much life insurance, you just cancel one $500,000 policy and still have the other $500,000 policy.

All this talk of death when there is a new life in the family. Seems counterintuitive. But I firmly believe that once you bring a life into the world, you are responsible for providing for them. And children are never more vulnerable than after the death of a parent.

Thus, it behooves us to do all we can while we are alive to make sure that our children are protected and provided for when we are not.

Besides, the superstitious part of me feels as if you are just inviting trouble if you don’t get this stuff taken care of ASAP.

The practical part of me knows that life happens and that when you have a new baby, you’re totally sleep deprived and overwhelmed – but you also know that the baby is new and it’s a good reminder of doing this stuff before you completely forget or it’s too late.

JT:  So true, Mandarin Mama.  I will add that Term Life > Whole Life.  With Term Life, you simply get more $ benefit per $ premium.  But how much?  We calculated what it would cost to pay for services if the other person passed and multiplied that number by 25.   For example, since I plan to continue working if anything happened to my wife (who is a SAHP), we took the annual cost of a nanny, a cleaner and, although I enjoy cooking, considered that we might eat out more often among other considerations.  Then we multiplied it by 25.  Why multiply by 25?  Because it’s generally the amount considered to last for at least 30 years.    

JT’s Grade:  A.  After Zuzzy was born, my wife and I each took out a 20 year Term Loan policy.  And because we each got policies while we were young and healthy, the premium is very low compared to the benefit.  We hope to never need it.

Homework:

I was sweating there.  I started off with a C but finished strong.  My final parent financial GPA is 3.4 — not bad but could be better.

I know what I’ll need to do to raise my GPA.  I need to send and email to my lawyer asking if Liza is on the policy.  This will be quick.  Then, I need to go through at least a dozen accounts to update the beneficiary information.  This will take longer, but I want to make sure poor Liza doesn’t feel disinherited by my lazy oversight.  

How’s your parent financial GPA?

(Thank you, Macabre…err Mandarin Mama, for your excellent tips.  Thanks for being such a good sport and letting me playfully use your post!)


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4 Comments

  • Lauren Fortenberry January 30, 2017 at 10:32 am

    I think I earned an A on knowing about each of these financial responsibilities, but in actual execution I fall in with C crowd. Is there anything more painful for a teacher?! Thank you for these insights. I would move #4 to #1 – not for overall life importance but for time consideration. We had to supply our health insurance company with our new child’s updated info upon leaving the hospital! Luckily, we had cute little babies to keep our spirits positive 🙂

    Reply
    • JT January 31, 2017 at 2:00 pm

      God knew what he was doing when making babies cute!

      Reply
  • Shirley Spedding January 30, 2017 at 12:01 pm

    Hi JT! Thanks for your helpful post! Does it really matter if you have a 529 Savings account or just a regular savings account if you don’t have much investment gains, and especially if you live in a state where there are no tax benefits? Any suggestions on which 529 Savings accounts may be good ones to explore?

    Reply
    • JT January 31, 2017 at 2:15 pm

      Hey Shirley! If you’re comparing a 529 plan vs a regular savings account on the basis of little investment previous gains, I would say 529 no question for future investment gains. If you live in a state with no tax benefits, you still get the federal benefits of untaxed gains. As for which ones, you can invest in other states 529 Plan. I don’t know which one is better than another.

      Let’s say you put away $7,500 per year for college. If it grows at 7% untaxed for 18 years, you get to about $255k. But what if it were taxed? Let’s say taxes take 2% off, so your growth rate is 5%, you would get to about $211k, do it’s a $44k difference. Pretty meaningful.

      Reply

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