The decisions don't end with baby's arrival. In fact, from the first prom dress to the first car, they tend to be more complicated and expensive as the years go by. But there are a few methods for making sure you can give your most precious possession the best of everything, and you should start financial planning for baby now.
College bound
All parents have big dreams for their child's future, and, soon enough, baby will too. It's never too early to start financial planning for baby. Tuition prices continue to rise. For a child born today, a college education could cost three to four times as much as today’s cost for college, which can range from $5,836 to $22,218 or more a year.* By setting aside money now - even a small sum out of every paycheck - you can watch your savings compound over the years. Then when the big day arrives, you may only have to worry about the cost of a college wardrobe.
There are many options available for financial planning for baby. Investments such as U.S. savings bonds, CDs, and money market deposit accounts are generally considered conservative, and are usually federally insured up to $100,000. Stocks, bonds and mutual funds are higher risk but also have greater reward potential. No matter what savings vehicle you choose, the most important thing is to begin financial planning for baby early. Learn more by reading Life Advice: Financial Planning for College.
Where there's a will
Another way to ensure baby's future is through a will that names a legal guardian and alternate guardian for your child. If you've put off writing a will, now is the time. Without a will, the court may appoint a guardian you would not have chosen. Be sure to check with the individuals you’d like to serve as your child’s guardian and alternate before naming either in your will.
In your will you can also leave assets to your child in the form of a testamentary, or "after death" trust. In setting up such a trust through your will, you dictate the terms of how the assets are to be used on your child's behalf and name a trustee to administer the trust until your child reaches a certain age chosen by you (e.g., 21, 25 or 30).
There are other types of trusts that may benefit you and your survivors and help to avoid adverse tax consequences. Trusts can be a complicated form of financial planning for baby, so be sure to get professional advice to set one up. Talk to an estate lawyer or financial planner to find out what’s appropriate for your specific situation. You may also want to review Life Advice: Establishing a Trust Fund or Life Advice: Planning Your Estate.
It's a Wonderful Life—Insurance
Life insurance can help provide for your baby's care, well-being and education in the event of your premature death. As a new parent, you should review existing policies to see if they are adequate to provide for your child. If you have no insurance, or your coverage is inadequate, consider purchasing more coverage. Consult your insurance agent, financial planner, or estate attorney to determine how life insurance can help you with financial planning for baby.
