Financial Planning for New and Expecting Parents
Regardless of your age, becoming a new parent is something no one can fully prepare for. Although sleepless nights and additional responsibilities are inevitable, having a new baby can wreak havoc on your finances if you’re not careful. You will likely have to adjust your cash flow to account for the added expenses of another mouth to feed. Perhaps one spouse will decide to stay home, leaving you with one income. With so many changes being thrown your way, here are a few tips to make it less of a financial shock.
Understand your coverage. Understanding what expenses your health insurance covers will help you determine your maximum out-of-pocket expense. Babies can be expensive; in fact, the average cost of raising a child from birth to age 18 could be as high as $260,366 according to Nerd Wallet, and this doesn’t even factor in college expenses.*
Estimate your healthcare costs. Once you understand your insurance benefits, you should have an idea of the cost of routine doctor’s visits, from your very first ultrasound to the birth of your child. It’s helpful to come up with a budget before your new bundle of joy arrives and adjust it as needed. Once your baby is born, it may take a few months until you are comfortable with your cash flow.
Save ahead for future expenses. While not all expenses are foreseeable, much of what comes with the cost of having a child can be budgeted. Doctor’s visits and child care costs, for instance, will likely be an ongoing, consistent amount. Saving an extra $50 or $100 from each paycheck can help pad your child care expense fund.
Fund your Health Savings Account (HSA). Before adding new debt with the cost of a child, it’s a good idea to pay off old debt if possible. This includes any credit card balances, student loans, and any other debt you can afford to pay off.
Cut down or pay off old debt. Before adding new debt with the cost of a child, it’s a good idea to pay off old debt if possible. This includes any credit card balances, student loans, and any other debt you can afford to pay off.
Update your beneficiaries. Now that you have more than just yourself to care for, it’s more important than ever to ensure your beneficiary designations are up to date. This will ensure the money you worked so hard to save goes to the appropriate people in the event something were to happen to you. If this is your second or third child, don’t forget to review and adjust your beneficiaries to ensure all children are accounted for.
Create or adjust your estate plan. Another way to ensure your child will be cared for is to update your estate plan. If you do not have a current will or trust, now is the best time to create one. More importantly, naming your child’s guardian in the event you and your spouse were to pass away is crucial to ensuring your children are cared for in the event you pre-decease them.
Don’t forget about your retirement accounts. As much as we want to give everything to our children to ensure they get the most out of life, do not forget about your own retirement plan. You should always fund your own retirement before funding other goals. Be sure to consistently contribute to your retirement accounts so you can retire and enjoy what you have worked for.
Consider funding a college savings plan or UTMA. After paying for the necessities and funding your retirement accounts, you may want to consider funding an account for your child. It never hurts to open the account and fund it when life allows for it. Any time your child receives a monetary gift, you can use those funds to save up over time. When it comes to saving, the earlier you start, the longer you have to let your funds grow, and by the time your children are ready to attend college, you will have funds to help with college expenses.
* Source: Nerd Wallet, Cost of Raising a Child Tops $260,000 – Just for Basics, March 20, 2017.
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