6 financial measures to take into account for couples when the birth of their first child

I recently spoke with a married couple who hadn’t thought about their finances or their shared goals in the many years they had been together. They were making a lot of money, receiving company stock, and were able to consistently max out their retirement plan contributions, so they thought that was enough. It wasn’t until they had their first child that they realized they might need to rethink how they operated. Having a baby can change a lot of things financially. Here are six financial moves to consider when you have your first child.

Sit down to discuss common goals and priorities

Every couple is different when it comes to financial management. It’s not unusual for me to meet a couple where one is determined to save a lot and retire early and the other says he will work until he dies. Whatever your differences, you might like to work together on some goals.

I find that often the two biggest financial priorities a couple can agree on when they have their first child are buying a home and saving for college. With many broad goals like this, I find that couples may not be on the same page when it comes to financing philosophy.

Sometimes I meet people who had to pay for college themselves and say they want to encourage their child to get a job or apply for scholarships or loans to have a small part in the game. I know others who say they want their child to follow whatever path they choose without worrying about money, even if that includes private college and graduate school. I even find that two people in the same couple can be at opposite ends of this spectrum.

If your financing philosophies vary, for example if you have different feelings about retirement, financing education, taking on debt or buying a home, it is essential to discuss them and to find a compromise. Too often I see couples who have avoided financial conversations for years and find themselves woefully underfunded to achieve their goals.

Set clear expectations

Most couples I meet don’t contribute equally to every financial goal. And sometimes I even see couples individually taking responsibility for shared goals.

For example, let’s say we have a married couple where they earn the same income but one of the individuals is a business owner and the other is an employee of a large company with generous benefits and significant match 401(k). Their goals are to ensure they have sufficient health care coverage, save for retirement, and save for their child’s college education. They discovered they needed to save $2,500 a month to meet their retirement and college goals.

In this case, the most effective path would not be for them to each cover their own priorities. Business owners generally have to pay much higher health insurance premiums than employees of large companies and would be responsible for paying for themselves if they wanted to maximize their retirement plan benefits. The most efficient route would likely involve the employee receiving significant benefits and a generous match, saving the maximum possible ($23,000 in 2024) in their 401(k) and placing both people in the couple on the employee health insurance plan. With the excess funds, the business owner can easily save $2,500 per month for their college savings.

Invest for their future

Many people simply think of a 529 College Savings plan when they think about investing in their child’s future. 529s can be attractive because they offer Roth-style taxation on investment growth when the 529 is used for qualified purposes. 529s can be restrictive and carry hefty taxes and penalties when not used correctly.

For added flexibility, couples can consider level transfers to minors’ accounts, life insurance cash values, or standard investment accounts.

Take care of yourself

Whatever your philosophy when it comes to financing college, it’s important to always take care of your personal financial needs. When couples haven’t saved enough for college, I sometimes see them paying for tuition out of their retirement funds. It’s important to note that while you can pay for college with loans, no one will give you a loan to pay for retirement.

Reassess your insurance needs

Insurance needs often change when couples have their first child, especially life insurance needs. Consider what your family might need if you die within the next 18 years. Here are some categories to consider in your needs analysis:

• Income replacement
• Pay off debts
• Burial costs
• Paying for college
• Bridging income in case your family needs to move or your partner needs to take time off from work
• Replenish household emergency reserves

Consider speaking with a qualified insurance specialist to assess your needs and find the right type of insurance for your needs.

Make an estate plan

Having an estate plan in place is the best way to ensure that if you ever die or become incapacitated, your child will be with the caregivers you want them to be with and have immediate access to funds he would need to maintain a comfortable lifestyle. Consider meeting with a qualified estate planning attorney to discuss your priorities and put a plan in place.

Conclusion

Having your first child is an exciting, life-changing time. If you build a plan around you and your partner’s shared goals and priorities, set clear expectations, invest in your child’s future, take care of yourself, reevaluate your insurance needs, and develop an estate plan , you can prepare your family for financial success. .

This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, objectives and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will take precedence over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, endorse, or make any representations as to the accuracy, completeness, or suitability of any portion of any content linked to This item.

Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable. Network, LLC, which does business in California as Equitable Network Insurance Agency of California, LLC). Financial professionals may transact business transactions and/or respond to inquiries only in states in which they are properly qualified. Any compensation Ms. Jones may receive for publication of this article is earned separately and entirely outside of her capacity from Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6710637.1 (06/24)(exp. 06/26)