Baby On the Way: Are You Ready for Your New Financial Reality?
by Carrie Schwab-Pomerantz, CFP®, President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.
August 10, 2011

Dear Carrie,

We're expecting our first child soon and there's so much to think about! Everyone tells us to start saving for college right away, but that's so far in the future. What about now? What should we focus on first?

—A Reader

Dear Reader,

You're definitely right that there's a lot to think about when you're expecting a baby. (I know from experience!) Cribs and car seats are only the beginning. And while you're immersed in handling the new physical and emotional responsibilities, it's easy for some financial essentials to get lost in the flurry. But as you're well aware, kids cost money and you need to be prepared. So here are some things to think about now—before time becomes an even more precious commodity!

Before the baby comes
From everyday budgeting to ongoing expenses, before the baby comes is the time to do some planning. So sit down together and put some things on paper.

• Review your monthly spending. You may be getting along just fine on your current income, but soon you'll have a whole new set of expenses. Basics such as diapers, formula and baby clothes add up quickly. If both of you plan to work, childcare can really take a bite out of your paycheck. Medical costs are bound to go up, both in insurance premiums and out-of-pocket costs. If you have to cut back, decide in advance how you're going to do it. Can you save a bit more before the baby's born? So much the better.
• Make sure you have the right insurance coverage. Health insurance is crucial. Whether you have an individual policy or insurance through an employer, make sure you have the best combination of deductibles and coverage. You'll also want to consider life insurance. Get enough to cover your mortgage, debts and provide for your child's education. Term life insurance polices can be quite reasonable. Some employers offer life insurance through the company, so check to see what your company offers. You may also want to look into disability insurance to cover your income in case you become ill.
• Create an estate plan to protect your child. An estate plan isn't only about money. It's also about making sure you designate someone to care for your children if you're unable. At the very least, have a will in which you name a guardian for your minor kids. Without it, the state can choose a guardian. Don't let someone else make this important decision.

Soon after the baby is born
Even though you'll have your hands full with the new baby, there are some administrative things you should take care of right away.

• Get a social security number for your child. You'll need this to claim your child as a dependent on your income tax return and to obtain medical coverage for your child. You can easily apply for a number when you give the information for your child's birth certificate. You can also get an application online at www.ssa.gov or by calling 800-772-1213.
• Add your child to your health insurance policy. Do this right away to avoid any delay in coverage. Some companies require you to enroll your newborn within 30 days.
• Check the beneficiaries on your 401(k)s or IRAs. You spouse is usually the primary beneficiary. You can add your child as a secondary beneficiary.

You might want to decide now which of you will be responsible for handling these details.

Focusing on the future
Now you can think about saving for college. A 529 plan is a great way to get started. Even saving a small amount each month will add up. A 529 also makes it easy for grandparents, other relatives or even friends to contribute to this important goal.

Taking care of yourself
While your child will soon be a primary focus, don't forget about your own financial needs. Keep contributing to your 401(k) or IRA. Prioritize your savings to include other long-term goals like buying a house or taking a family vacation. And while you're at it, remember to put aside a little for some personal R & R. A night out once in a while can be a welcome break—even if you spend most of the time talking about your new bundle of joy!

Important Disclosures

The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction and investment strategy for his or her own particular situation. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.

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