Ten Basic Steps You Can’t Afford to Ignore
By: Nancy Dunnan
Ask any new parents how well they’ve organized their financial lives and most will throw up their hands. Who knows, they say, which health insurance covers what charges, or where the heck the baby’s brand-new Social Security card got filed. But even though people with young children are at the busiest stage of their lives, there are a number of steps you need to take now to provide for the baby’s well-being and for yours, too. says financial adviser Nancy Dunnan who helped us with the following checklist.
BEFORE THE BABY IS BORN: Review your health insurance.
Be sure prenatal care is covered in your policy and find out how to enroll your child in your health plan. Some plans will not include a baby if he or she is not signed up within the first 30 days of birth. You also want to make sure the birthing facility, the type of delivery planned, well-baby care and immunizations are covered. Find out if you can preregister for delivery and skip the nightmare of filling out forms when you should he sucking ice chips.
Reshuffle your budget and create a special savings account.
You’ll need extra money to cover the expense of setting up shop for Baby, including equipment, furniture. and clothes. Instead of using a bank savings account (interest rates are much too low). open a money-market mutual fund. Start trying to live on significantly less each paycheck so that you can begin making the adjustment to life with either one less paycheck or a big child-care bite.
Check out your firm’s family-leave policy.
By law, you’re entitled to 12 weeks’ unpaid family-leave. Speak with your benefits officer to learn whether your company has a more liberal policy. Also find out what kind of disability payments you may be eligible for on your maternity leave and the exact date these payments will kick in.
ONCE THE BABY ARRIVES:
Get your child a Social Security number.
You’ll need to list this number on your tax return in order to take the dependency exemption for the baby. Most hospitals make the arrangements. but if yours doesn’t, call the Social Security Administration at 800-772-1213.
Write or update your wills.
Without a will, an orphaned child faces the possibility of having court-appointed guardians and court supervision of his or her properly. You can avoid this by naming a legal guardian and an alternate for your baby in your will. Be sure to discuss the mailer with the candidates beforehand: you want to be certain they are willing lo take care of your child should you die. Cost: about $500 if you have a lawyer do it or about $30 with WillMaker, a do-it-your-self software program from Nolo Press (800-992-6656).
Review your homeowners’ insurance.
Make certain it covers any baby-sitter or other help that you hire to work in your home and while you’re at it, see if you need a floater for any valuables you’ve acquired recently.
Start a college savings account.
It’s hard not lo flinch every time you see an estimate of how much college will cost in 17 years. But focus now on saving regularly, not on saving big money. And encourage family and friends to give cash, stocks, bonds. or mutual-fund shares to the baby instead of the usual clothes and toys.
For the most part, it’s wise lo save money in your own name, not the baby’s. since it may make it easier to receive scholarships later. One exception: The 1997 tax-reform bill created a special Education IRA that most parents shouldn’t ignore.
It enables you to set aside $500 a year per child. Contributions aren’t deductible, but the account grows tax-free, and if it is used for qualified educational expenses, it is not taxed when withdrawn. All the money must come out before the child reaches age 30 or must he rolled over into another family member’s Education IRA.) Contributions can be made only by taxpayers who meet the Adjusted Gross Income limits: $95,000 for single taxpayers and $150,000 for couples. And that’s not limited to parents something to keep in mind when Grandma and Grandpa wonder what they can get the baby.
EE Savings Bonds, which at press time were yielding 5.06 percent, cost as little as
$25. You can purchase them at most banks and often through payroll-deduction plans at work without a fee. Depending on your income. if you put EE Savings Bonds in your name (not your child’s) and use them to pay college tuition, the interest will be free of state, local. and federal income taxes. Call 800-US-BONDS. Cost of a sayings program: as little as $25 a month.
Supplement your life insurance.
Though many people have some coverage through their employer, you want enough insurance to take care of your baby through college in case you die. For most young parents, term insurance, which is considerably less expensive than permanent or cash value, is a good solution. The rule of thumb is this: Buy a policy that pays a death benefit equal to at least five to seven times your annual salary. Costs vary, but a $350,000 policy for a healthy man or woman, age 35, might cost $375 annually. To find out how much coverage you need, taking into consideration all your assets, use Quick-Quote’s “Term Life Estimator. ” available at www. quickquote. com. Another good on-line source of insurance estimates is www.quotesmith. com.
Before you go about buying any kind of life insurance. be sure to pick up a free copy of What You Should Know About Life Insurance, available from the National Insurance Consumer Helpline at 800-942-4242. This publication offers advice on which type of insurance plan is most appropriate for your situation.
Supplement your disability insurance.
Again, most employers provide some. But each working parent should have enough insurance to replace about two thirds of his or her income. Check lo see if you can get more coverage through your employer. If so, sign on: it’s less expensive than buying it on the open market. Estimated cost: A healthy woman earning $40,000 a year might pay $800 per year.
Open a safe-deposit box.
You’ll want one for your baby’s birth certificate, Social Security card, any stock and bond certificates
Nancy Dunnan’s latest book is Never Call Your Broker on Monday and 300 Other Financial Lessons You Can’t Afford Not to Know (Harper Collins).