New Parents: Here Are Your First Two Money Moves When Baby Arrives

I’ll never forget holding my infant son in my arms and rocking him back to sleep in the middle of the night by the fireplace. In that moment, life stood still for me.

Whenever I think of those early days, that wonderful memory of holding my tiny boy comes back to me as if it were yesterday, even though it was 28 years ago.

Your life will change a lot in your first year as a parent. As with most life milestones, there are a couple of very important financial moves to make during that time.

Before you do anything else, such as starting a college fund, make sure to put some protections in place for you and your spouse, the family’s breadwinners.

1. Review your life insurance policies to make sure you have adequate coverage.

If you’re not sure how much you need, you can run a life insurance needs analysis yourself or talk with an insurance agent to determine the amount based on your income, assets, and future needs and goals. Go to LifeHappens.org for a needs-analysis calculator.

Another way to determine the amount of coverage you want is your “human life value.” Obviously, you are more than just your salary, so the term may seem odd, but the calculation can be helpful.

This formula takes into account the amount of your future earnings, your tax bracket, life insurance already in force, and how much you have already saved. Check out a human life value calculator here.

Take an inventory of how much life insurance you have individually and in your group policy at work, if applicable. Then fill the gap between that and what you calculated. You may be able to increase your group term coverage at work, because having a baby counts as a life event. This may allow you to make a change in your benefits during the year, instead of having to wait until open enrollment.

2. Protect your income with disability insurance.

If you ever get sick or hurt, your family may still need your income. Don’t count on qualifying for Social Security disability insurance, as the requirements are steep: You have to be severely disabled, and must be unable to work for a year or have a condition that will likely be fatal.

Instead, find out if you have a group disability plan through your employer and/or look into an individual disability policy. After a waiting period (depending on your plan it could be 30-90 days), benefits start if your injury or illness leaves you unable to do your job.

Check the definition of disability on your policy. It could be defined as not being able to fulfill the duties of your “own occupation” (best) or “any occupation” (not as good). Some policies will pay a benefit if you can’t do your particular job for a certain time period, such as two years, and then the definition switches to “any occupation.”

The longer the benefit period, the better the policy. A great policy will pay a disability benefit for many years, up to age 65, and a basic policy will pay a benefit for at least two years, as long as you are disabled for that whole period.

If you don’t have any disability insurance, your family would need to scramble to make up for your lost income if you had to stop working.

You don’t have to do it alone. Get some help from an experienced insurance agent or Certified Financial Planner™ Professional to point you in the right direction.

So before you start funding college for your little one and planning all kinds of great vacations and adventures to show them the wonders of the world, get protected.

Late at night, when you wake up to feed your little boy or girl, wrap them up, hold them tight, and rock them gently until they fall back asleep in your arms. Savor that moment, because if you are like me, you’ll remember it fondly for the rest of your life.

This post appeared first on Forbes.com under the title, New Parents: 2 Crucial Money Moves To Make Within Your Baby’s First Year

New Parents Dilemma: Should I Save For My Child’s College Or My Retirement?

This story originally appeared on Forbes.com as New Parents: Which Comes First, Saving For Your Kid’s College Or Funding Your Retirement?

Saving for college before funding retirement seems like a no-brainer for new parents.

When a new baby is born, you may think, “College is only 18 years away, while retirement is way down the line!” You may even think you’ll never retire at all, so why worry about it now? You certainly don’t want your kids burdened with student loans like you were.

This knee-jerk reaction could pose problems later. Regardless of your gut instinct, saving for retirement comes first.

You may be wondering why a financial planner is discouraging new parents from saving for college — aren’t planners always telling people to save for their goals?

Not when it comes at the expense of their own retirement.

Here’s why you should prioritize saving for retirement over saving for your children’s college educations:

Retirement is harder to fund.

It’s exceptionally challenging to create an income stream to last 30, 40, or even 50 years. College expenses last only four years and often come during a parent’s highest-earning years.

There are no scholarships, grants, or loans for retirement, either. College funding is an investment in a growing asset — your child’s earning potential. Conversely, retirement funding relies on depleting assets — it is a spend-down plan.

Just because college may come first chronologically doesn’t mean it should be funded first.

Financial planning isn’t linear. People have multiple goals that compete for savings and investment dollars. Rather than immediately opening a 529 plan for a new baby, parents should take a step back and come up with a strategy for meeting both goals, with retirement at the forefront.

Here are 7 ideas on how to fund your own retirement and help your child pay for college expenses:

1. Flip flop the “401(k) delay.”

Fund retirement as early as possible — don’t delay early in your career, like many people do. When your child is in college (and you’ve got a solid retirement balance), then delay. If necessary, temporarily suspend contributions to your retirement plan during your child’s college years and use the extra income to pay educational expenses.

2. Fund retirement first to take advantage of a lifetime of compounding interest.

Starting early makes a monumental difference. According to the JP Morgan Guide to Retirement, an investor who starts funding their retirement at age 35 and funds $10K per year for 30 years until age 65, earning 6.5% interest, would have an account balance of $919,892.

Contrast this to an investor who starts at the beginning of their career at age 25 but only invest for 10 years and then stops contributing altogether. They only put in $100,000 in total (instead of $300,000) but at age 65, their account balance is actually higher at $950,558 than our contributor who started ten years later.

Starting early can make a huge difference in funding a successful retirement.

3. Plan to pay out of pocket.

Though not always the case, your peak earning years often hit when your kids are in college. Plan to earmark earnings and bonuses for college funding, and reduce your retirement savings at that point.

4. Choose investments that do double duty.

A 529 plan is great, don’t get me wrong. The earnings can be withdrawn tax free for qualified college expenses, and some states even allow a write-off on your state tax return for your contribution. The account, however, is one dimensional — it can only be used for college expenses. Consider investing in accounts that have more flexibility and can provide multiple benefits.

A Roth IRA, for instance, can double as a retirement funding vehicle and college savings account if needed. Anyone can withdraw their contributions with no penalty or taxes at any time. However, if funds are used for qualified college expenses (such as tuition and books,) the IRS allows some special exceptions where account holders can also withdraw the earnings without a penalty.

5. Tap into your home equity to pay for college.

Your investment in your home can double as a college-funding vehicle. You may be able to take out a home equity loan or line of credit to pay for college expenses. You could pay the loan off over time, or if you downsize your home, you could use the proceeds of the sale to pay off the loan.

6. Invest in rental property now for income later.

A rental property can double as retirement income and a college-funding vehicle. Though being a landlord can be fraught with headaches, those inclined to invest in rental property obviously can use the income for whatever purpose they want. The cost of college can be offset by real-estate cash flow. Then, when your student graduates, the income can be redirected to fund retirement.

7. Start a “side hustle” now.

Your little business could turn into an income stream later. You could drive an Uber or Lyft on Friday nights or take advantage of one of the thousands of small business opportunities on the internet — anything from blogging to selling collectibles. A small side business could turn into a big income stream later to offset the high cost of tuition, room and board.

Do a little of all of the above

Your college funding strategy may end up looking like pieces of a puzzle you put together.

It could be a jumble of paying out of pocket, pulling from a Roth IRA, taking a loan against a 401(k), using a home equity line of credit, and tapping a “side hustle.”

Additionally, your student can apply for every scholarship known to man, take out a few student loans, and max out free or inexpensive units by taking AP classes in high school and courses at a community college.

It may not look pretty, but it can be done without sacrificing your retirement savings.