Time to get your shit together, and holy shit is there a lot of shit. (Not to mention all the actual shit. There’s lots of that, too.) If and when you’ve got a tiny human depending on you for all the things, it becomes more imperative than ever — and just as confusing — to lock down your financial planning for your baby’s future. Assuming, of course, your baby’s future is important to you.
This list is by no means exhaustive, but it should establish the baseline for what you need to do to get your money right. It covers a bit of everything, from what you need to know about college savings to funding for emergencies. After that, all you have to do is remember where you buried the quarter million and change it costs to raise them.
College Savings First, go ahead freak out about the fact that the cost of a 4-year public university education is expected to exceed $200,000 by 2030. Laugh maniacally over what a horrible investment it could be, consider not making it at all, then maybe cry a little. Take as much time as you need.
Back? Cool. Now relax. Starting saving today significantly improves your ability to pay later, and the basics aren’t that complicated. First, your options: a Coverdell Educational Savings Account (ESA) or a 529 plan. The ESA is more flexible; you can use the funds for any level of education and more kinds of educational expenses. The 529 is college-specific, stricter about what the funds can be spent on, and almost always the better choice according to award-winning New York Times financial columnist Ron Lieber (who also makes some sound retirement savings recommendations you really should read). Besides unparalleled tax breaks, 529 benefits include:
- You control the account
- Most 529s can deduct straight from your bank account into a professionally managed investment fund
- You don’t have to report contributions on federal tax returns
- You can change investments twice a year and roll over funds to another 529 once a year
- Everyone is eligible
You can read a full breakdown of the differences here, or read up on Lieber’s preferred site, savingforcollege.com, but the bottom line is this: put some money for college away somewhere, or the kid may never experience the joys of freshman dorms, cramming for finals, or soul-crushing student loan debt.
Emergency Fund Generally speaking, you want 6 months of income stashed and readily available for emergencies at any given time. (“Stashed” meaning “in a bank;” under your house’s rotting foundation only works for the most Heisenbergish emergencies.) Here’s the ridiculously oversimplified 5-step starter plan:
- Direct deposit. Allocate a certain amount from every paycheck to go directly into the rainy day fund. The best kind of savings are savings you don’t have to think about (or ever have the opportunity to frivolously spend).
- Sell your junk. Sad as you may be to see that neon St. Pauli Girl sign go, you definitely don’t need it as much as that drunken frat guy on eBay. Boom. You just made 50 bucks for the emergency fund without having to leave the house or put on pants.
- Count your pennies. Instead of paying with plastic, spend cash and save your change. That big jar adds up quickly. Plus, kids love rolling quarters, and they don’t take commission.
- Save seasonally. Many banks offer seasonal accounts for holidays like Christmas that you can only access at specific times without paying a stupid fee. Emergencies don’t occur often, but when your kid has to have whatever next year’s Elmo thing is, you’ll be ready.
- Spend less. Sure, this is the equivalent of saying “Miss a meal” in a weight loss guide, but think about the unnecessary crap you probably spend money on any given week and the savings that could amount to in the long run. Captain Obvious says, “You’re welcome.”
Financial Advisor Even if you did manage to get your head around all this stuff, you still might want some help putting your genius plan into practice. Luckily, finding said help is probably the easiest thing to do on this list. A few things to keep in mind that’ll help you choose the right advisor to tell you what to do with your hard-earned cash (besides pay them):
- Do your research. Start with friend and family recommendations — Grandma and Grandpa won’t steer Junior wrong — then scout firms via their websites and LinkedIn reviews. You can search for a planner directly through the Financial Planning Association and National Association of Personal Financial Advisors, and check their ethical records and certification status using BrokerCheck and the CFP Board’s site.
- Fee or no fee? Fee-only advisors don’t earn commissions for selling you specific investments; they just charge a rate based on the assets you have them manage. Sounds like the obvious choice, but broker-dealer firms can help with annuities, life insurance, or disability insurance in addition to stocks, bonds, mutual funds, etc. Might be worth paying the commissions for one-stop shopping.
- Ask the right questions. How do you charge, and how much? What are your credentials? What services do you provide? What types of clients do you specialize in? Can I see a sample plan? What’s your investment approach? How much contact will we have? Will I be working only with you or a team? What makes you unique?
Mind their manners. The last question is for you to ask yourself: is this guy paying attention to me? They shouldn’t be talking 90 percent of the time; they should be considering your goals, concerns, and background and building a plan specific to your circumstances.