“Do you have any financial advice for new parents?”
A handful of friends have asked me 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. My typical advice sounds something like this:
- “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 have seen several times!). The trust should help avoid probate for assets placed within it and provide for supervision of the assets for the benefit of the children.
Unfortunately, the above is often news to new parents. However, both of the above can be one-time decisions, which is a relief for most new parents who are completely overwhelmed with the chaos of parenthood. Neither action is free, but the reduction in risk is well worth the expense IMO.