Here are three things you can give kids to help ensure their financial well-being, right from the start. Consider giving these as "gifts" - you could skip the wrapping paper and bows in favor of a sound financial strategy.
Give the gift of education
A 529 plan is often the best way for parents to save for their child’s college education, because of its tax advantages and flexible rules. Each state has a 529 plan, but you can probably get a tax deduction in your own state's plan. Each state also has a financial firm to administer the plans, so you'll set up your baby's account there.
How much do you need to save? Well, consider this: If you put $250 a month for the next 18 years in a fund that adjusts over time, your child will have about $100,000, probably enough to cover a four-year state school. That assumes a 6% return from a combination of stocks and bonds. To keep saving, establish an automatic transfer from your bank.
If $250 is too much to start saving in the first year, you can often begin with an amount as low as $25 per month.
Look for a plan with an expense ratio of less than 0.5%. If your state has a high-fee plan but you get a big income tax deduction, it's probably best to stick with your state's plan.
Protect them even when you're not there
Along with having a will, you can protect your child financially by buying a term life insurance policy that gives your family a payout in case of your death. "Term" life is in effect for a specific term, or number of years.
Some people have life insurance coverage through their employer, but those plans can offer a smaller amount than what is needed. Many people want a term equal to the length of their mortgage, or the date their youngest child turns 18.
Think about how much you earn in a year and multiply that by the number of years your family should be worry-free. Add in the amount of your total debts, including credit cards, mortgages and car loans.
A young parent's monthly premiums are likely less than the cost of a cup of coffee per day, and they won't rise over time.
Remember them in a will or trust
As a new parent, it's your job to plan for any worst-case scenarios. You may not like to think about the worst happening, but, for the sake of your family, it’s important to face the possibilities.
Your expanding family stands to benefit if you take the time to write a will or create a trust.
You can write your own will, have it witnessed by two people and then notarized. You may also want to hire a lawyer or estate planner to help tackle a more complicated estate.
Along with stating what should happen to your assets, from investments to real estate, an estate plan should make it clear who will care for your child if something unforeseen happens to both parents. It can be hard to think of anyone but you raising your baby, but seriously considering this issue will be a gift to your child if something unfortunate does occur.
What you can do next
The sooner you turn your attention to financial basics, the easier it will be to tend to the hard stuff—like raising great kids.