Nov 8, 2012

Oh Baby! Making the Best Choices—Financially—for Your Newborn

Pregnancy—labor—bringing baby home. You’d think the hard part is over, but actually now comes the tricky part—determining the best savings plan for your child. 

It will most likely take four to sixteen weeks to receive a social security card for your little bundle of joy. (Typically hospitals have the paperwork for a social security card and provide new parents with it before they are discharged.) Wait until you receive the card to take action. You will need this number in order to proceed.

During this time, it’s a good idea to evaluate the timeline and what you would like to save for. Are you saving for something that your child will draw on regularly, or will they wait to draw funds until college or into the future? This makes a difference in deciding which option is best.

A few options…
  • Traditional Savings Accounts — Most will follow a typical savings account rate, which is typically on the low end interest rate-wise but typically has a low minimum balance and requires minimal funds to open. If you put $5 a week in a savings account starting when they are born, your child will have approximately $4,700 when they turn 18.
  • Certificates of Deposits (CDs) — Most require a minimum of $1,000 to open and have a certain amount of time where the funds must remain untouched. However, CDs have a higher interest rate than a savings or money market account. (It’s a good idea to watch for special promotional CDs that often have even better rates.)  If you put $25 a week in a CD starting when they are born, your child would have approximately $23,000 when they turn 18.
  • College Savings Accounts — And if you’re really looking to get a good rate of return over time, you might want to invest in a College Savings Plan. In addition to offering a high rate of return on investments, these types of accounts also offer tax advantages. Wisconsin’s 529 College Savings Plan is EdVest. If you put $25 a week in a College Savings Plan starting when they are born, your child would have approximately $65,000 when they turn 18.  

Additional Things to Consider…
  • Budget — Babies bring expected—and unexpected—expenses. You should review your family’s budget and update it to include new expenses like diapers, baby food, insurance, health care, and day care. Remember to update your income to reflect any changes in your work status, if one parent is staying home to raise the child or only returning back to work part time.
  • Insurance/Retirement — In addition to adding the new baby to your health insurance plan, parents should examine their own life insurance policies and possibly make adjustments. The same is true for retirement and other savings accounts. Are the goals that you’ve set for yourself before children the same goals you have as you begin to have children? If not, parents may need to make adjustments. Now is also the time to review beneficiary information on all investments, insurance, and retirement accounts.
  • Will — Wills are often a touchy subject for people. However, having a child to think about is a great reason to establish a will if parents don’t already have one. Contact an attorney to discuss your options.
  • Vehicles & Home — These are areas that need to be examined after the birth of a child. Is your vehicle equipped to safely transport children? Is your home functional enough to support a growing family? Even though it’s probably not necessary to buy a new vehicle or move to a new home simply because of a new baby, it’s still a good time to reevaluate. 

Remember: When it comes to a savings plan for your child, there isn’t one magic answer. It depends on your financial situation and overall goals. No matter how you look at it though, higher education is getting increasingly more expensive. It’s a good idea to start saving when children are young. As you’re going through our list of savings plan options, contact a
Bank of Luxemburg representative with any questions or concerns.


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