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Financial tips for expecting parents
Experts recommend adding insurance and balancing long and short term needs for bringing up baby.
July 18, 2005: 5:53 PM EDT
By David Ellis, CNN/Money staff writer

NEW YORK (CNN/Money) - As an expecting parent, you've got a million things to do before the stork arrives - getting a new crib, working out the delivery details with your doctor and not to mention picking out a name for your newborn.

But don't neglect your finances.

"I think people should start planning as soon as they know they are having a baby," said Linda Murray, the executive editor at, a Web site that provides advice to expecting parents.

Insurance: making sure you're covered

Upon learning the good news, adequate health, life and disability insurance coverage should be at the top of your priority list.

Jeanne Robinson, a certified financial planner with the Marshall Financial Group in Doylestown, Pa., said simply knowing what medical expenses will be covered during the pregnancy is key.

Many times, she said, insurance policies do not cover certain medical expenses and that can mean paying out of pocket at a time when money is tight.

"The worst thing is having a shock financially come along after the pregnancy," said Robinson. "It's important to understand what you have and what is available to you."

Creating a life and disability insurance policy or increasing your existing coverage is also essential. In the event of a tragedy or a debilitating illness, you need to ensure that the mortgage is taken care of and that child care costs are covered.

Dr. Steven Weisbart, an economist at the Insurance Information Institute, said that a good rule of thumb for disability coverage is 60 to 65 percent of your gross salary.

While many new or expecting parents may be reluctant to think about buying life insurance, Weisbart said that you should make sure your policy covers 10 times that of your existing salary.

"The goal should be, if you are a new parent, to be able to replace the income you would generate until the child has grown and left the house," he said.

Appointing a guardian is also important since you might prefer a parent or sibling take care of your child instead of letting a court decide.

Balancing long-term plans and short term needs

New parents should also make sure they balance the needs of the newborn without sacrificing their own financial goals, said Sharon Luker, a certified financial planner based in Plano, Texas, a suburb of Dallas.

She noted that while it might be tempting to scale back on 401(k) contributions, you run the risk of derailing your own retirement plans.

At the same time, worrying too much about your own retirement might force you to charge diapers and baby clothes to your credit card, racking up debt that could be equally damaging.

So where's the balance?

A good deciding factor, said Luker, is age. Individuals who waited until later in life to have children may have already built up a significant retirement nest egg and can afford to start saving for their child's education or teenage braces.

For younger parents, adhering to retirement goals should not be sacrificed for starting a college fund.

"My advice is you better take care of retirement over college planning because there are always ways to get money for college," said Luker, a mother of three-year old twins.

If you do have to trim your 401(k) contributions, don't worry, your retirement is not in peril -- just make sure you contribute enough that you get all of the employer's matching funds.

If you or your relatives are set on starting an investment vehicle for your newborn, both Luker and Robinson recommended putting money into a 529 plan, a tax-free college savings account.

While your options seem almost limitless with bonds, stock and certificate of deposits, the money in the 529 is allowed to grow tax-free before a child is ready to enroll in college.

It's the little things

Linda Murray, also the lead author of the book "The BabyCenter Essential Guide to Pregnancy and Birth", recommended people use the pregnancy as a time to pay down debt since you will be spending a lot of time at home. She also suggested that since the weeks following the birth are a hectic time, you pay all of your bills for the next month right before the baby's due date so you avoid late fees.

Releasing a survey last week, the health insurance company Aetna and the Financial Planning Association both advised that you take advantage of a flexible spending account if your employer offers one. Under this account, up to $5,000 can be deducted tax-free from your paycheck to cover child-care expenses. While it may not cover the entire cost of child care in many cities, it can trim your out-of-pocket expenses.

The survey also recommended that you get a Social Security number for your newborn before you leave the hospital for certain tax breaks. Besides potentially qualifying for child and dependant care tax credits and earned income credits, each dependent child on your W-2 means a $3,2000 deduction come tax season.

Of course there are also such money shortcuts as finding other new parents who may want to consider pooling resources to buy things in bulk. While a crib and car seat are worth purchasing brand new, other first-year items such as a stroller or a playpen might be worth buying second-hand.

All of which can mean giving your wallet a much-needed break.

Want to know how to teach your kids the value of money? Click here.

Are you prepared for your retirement? Click here.  Top of page


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