The things they never tell first-time parents

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Creating a secure financial future for your new baby is one of the most important things you can do — but few parents know where to begin. — By Simona Covel

Key points

  • Learn why it's important to create or update your will, name a guardian and describe how assets should be used to support your child
  • Think about how much insurance your family needs to keep going if one or both parents were to pass away
  • Start planning for college early, perhaps by setting up automatic monthly transfers to a 529 college savings plan account
  • Learn about investing for a child's education
When our son Colby was born, we received one monogrammed baby blanket, three hooded towels and countless words of wisdom about sleeping schedules. But no one mentioned the long-term financial implications of our happy event or how to budget for our growing family.
Most new parents realize that raising a child is expensive — latest government figures put the cost at $233,610 for the first 18 years alone, not including college tuition or inflation.Footnote 1 But we wanted to give our son more than the necessities of food, clothing, health care and a roof over his head. We wanted to create a secure financial future for him, and we didn't have a clue where to begin.
So I decided to do some digging. Turns out there are three really important financial moves every new parent should consider. Devoting time to these three things during the first year of your baby's life may seem like a challenge — especially when you're sleep-deprived. But having done them ourselves, my husband and I are convinced that they were worth the effort. And we're sleeping better knowing that we've taken steps to help protect our family.

1. Appoint a guardian and an executor

My own mortality was the last thing I was thinking about after bringing a new life into the world. Turns out, I'm not alone. Many people put off creating a will for just that reason, says Jean Kim-Wall, director, Strategic Wealth Advisory Group at Merrill Lynch, who has a four-year-old son and a two-year-old daughter. But a will is critical for parents of minor children because it allows you to name the person you trust to take care of your child if both you and your spouse should die.
While it was difficult for us to imagine not being here for our son, we quickly realized how important it was to have a will and especially to name a guardian. And not just any guardian — the right guardian. Someone who would be able to give the love and support we hope to provide. Someone who shares our values and could pass them on to him. Someone who could keep our memories alive. Picking a guardian for our son may have been the most important parenting decision we've made so far.
Almost as important as naming a guardian is naming an executor — the person who wraps up your affairs, pays bills and expenses and makes sure your property is transferred to those named in your will. A will allows you to stipulate how your assets will be managed and used to see your child through to adulthood. More specifically, you can use a will to outline exactly how your children can gain access to whatever money you may leave, and at what stage in life.
Designate your beneficiaries
When was the last time you reviewed your beneficiary designations? Check your retirement and brokerage accounts to be sure your beneficiaries are up-to-date.
The terms of your will can be quite specific: money could be allocated for private school, to cover the cost of flying to visit grandparents, or even to help the guardian with additional expenses associated with raising your children. But regardless of the details, Kim-Wall says, it's important to start somewhere. "It's easy to spend so much time trying to get each provision perfect that you become paralyzed," she says. It's best to get a basic version down on paper, and then revisit it every few years to address changes in circumstances. For more on wills and related documents, see the Estate Planning Checklist.

2. Get your insurance in order

Next, it was time to consider life insurance. For the first time, we took a good, hard look at all that paperwork from the human resources departments at our employers and saw that my husband's employer offered $500,000 in coverage, while I had a little less.
Those amounts would probably cover only a few years of lost income, says James D. Gothers, director, National Insurance Executive, Merrill Lynch Personal Wealth and Retirement. So we considered what our family would require in the long term to help minimize major disruptions to our lifestyle if one of us died. One tip: don't underestimate the need to insure the spouse who has less income or stays at home. Childcare needs and other day-to-day rhythms change when a parent dies, straining the surviving spouse both financially and emotionally.
When I'm fastening my son's diapers, sending him off to college seems light-years away. But I can't think of a better way to help secure his future than to give him a good education.
— Simona Covel

3. Don't postpone college planning

When I was fastening my son's diapers, sending him off to college seemed light-years away, I couldn't think of a better way to help secure his future than to give him a good education. And I knew we'd be foolish not to think about those costs now, given tuition's steady march skyward. Years from now, when my son packs his bags for the college campus of his choice, we could be facing a bill of $300,000 to $400,000.Footnote 2
"Those numbers seem so daunting and unrealistic that a lot of people just do nothing," says Richard J. Polimeni, director, Education Savings Programs at Bank of America Merrill Lynch. Polimeni, who has two children in high school, suggests starting with a specific goal in mind.
His family, for example, has set out to save and invest enough to cover four years of tuition and fees at an average-priced private school for each child. Once you have your goal established, you can then figure out what you need to put away each month to help you pursue it. Polimeni adds, "Even if I can only put aside a portion, that's money I or my child won't have to borrow down the road," he notes. After my conversation with Polimeni, my husband and I set up a 529 savings account and started making automatic monthly transfers, and we feel better having taken that step.Footnote 3 Because of the new tax bill, 529s now cover elementary and high school tuition up to $10,000 per year, in addition to college and graduate school costs.
My son is now five years old, and I recently had another child — a daughter named Ivy. Even with two children, my life has a more regular rhythm than it did during those frenzied early days and nights of first-time parenthood. We're still adding new items to our financial checklist every day — like remembering to calculate the childcare credit come tax time. But with each planning item we address, I feel that we've done a little something more for our family. And that leaves us more mental energy to focus on our growing children — and all the possibilities that lie ahead for them.
Next steps

Simona Covel is a financial writer and editor based in New York.

Footnote 1 "The Cost of Raising a Child", United States Department of Agriculture, January 2017.

Footnote 2 Campus Consultants Inc. Projections based on cost for one year for the Fall 2029-Spring 2030 school year for a 4-year private (nonprofit) college, assuming annual increases of 7%. Cost includes tuition, fees, room and board.

Footnote 3 No investment plan is risk free, and a systematic investment plan does not ensure profits or protect against losses in declining markets. A systematic investment plan involves continual investment in securities regardless of fluctuating prices. You should consider your financial ability to continue investing through periods of low price levels.

Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation.

The case studies presented are hypothetical and do not reflect specific strategies we may have developed for actual clients. They are for illustrative purposes only and intended to demonstrate the capabilities of Merrill Lynch and/or Bank of America. They are not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality.