Having a child is an exciting time in life! From decorating the nursery and buying cute clothes, there are a lot of decisions to make. Aside from choosing the sweetest name or the perfect nursery paint color scheme, one of the most impactful series of choices you will make all revolve around finances and how you financially prepare for a newborn baby.
A recent study done by the Brookings Institution for the Wall Street Journal found that due to unprecedented inflation rates, parents can expect to spend at least $300,000 raising a child until age 17, yikes!
While that may sound overwhelming, Here are six tips to consider when you begin financial planning for a newborn baby.
Prepare For a Newborn Baby
Babies come with plenty of expenses, so start by setting a limit on both necessary and optional buys. Consider buying used items or borrowing from family or friends to keep spending under control. Once you know what you’ll be spending on out-of-pocket medical costs, understand how your income will be impacted in the coming months and have prepared a shopping list for your new addition, adjust your budget accordingly.
Make a Parental Leave Plan
Some employers may provide paid or partially paid parental leave, but they are not required to do so by law. However you may be eligible for a leave of absence from your job for designated family and medical reasons through the Family and Medical Leave Act(FMLA).
The FMLA entitles you to up to 12 weeks of unpaid leave with continuation of group health insurance coverage. And if FMLA is not an option, put a little extra in your emergency funds. A good rule of thumb is to look at your monthly take-home pay multiplied by the total parental leave period as a goal to save. This will ensure that your expenses are covered and that you won’t feel the squeeze or be forced to return to work earlier than you anticipated.
And if you can’t save the full amount you think you’ll need, remember that any extra money you can set aside will help.
Evaluate Your Health Insurance
As an expectant parent, you already know the importance of health insurance for both prenatal care and hospital delivery costs. And once your baby arrives, he or she will need coverage for initial pediatrician visits and any other health concerns that may arise.
Before your baby arrives, review your health insurance plan and compare it with your partner’s to determine which is the best option for your growing family. When comparing plans, run some numbers on deductibles, copays and out-of-pocket maximums to see if there is a discernible difference between your plan and your partner’s plan.
Think Ahead for Child Care
Childcare after having a child will become one of the biggest budget item for most families. Finding quality care and making ends meet is a serious challenge families face. If you’re considering a day care facility, know that many will require a deposit to hold your spot and a month’s tuition paid upfront.
To help you plan for child care, call different day cares well ahead of time to ask about monthly costs, and talk with other parents who have nannies to get an idea for the average rates in your area.
Don’t be afraid to ask your family and friends for help babysitting in the first couple of months, while you rebuild your finances.
Build Your Emergency Fund
An emergency fund is a crucial part of financial planning. Having one can mean the difference between putting off important goals when the furnace breaks or being able to pay for repairs without worry. It’s a good idea to save at least six months of your expenses to cover these types of unexpected costs. Make sure your emergency fund is in a good place. If you’re planning to dip into it for baby costs, have a plan to replenish it. If you haven’t started an emergency fund yet, now is the time.
Set Up a College Fund
Higher education is costly, so the earlier you start saving, the longer the funds will have time to grow. A tax-advantaged plan like a 529 education savings plan can be a smart way to save for college. It is unique because it can be used to cover college costs, as well as any qualified education expense, including K-12 school costs. An Education Savings plan grows tax-deferred and has a $2,000 yearly contribution limit that is subject to certain restrictions.
A financial professional can talk through the options with you and help you set up an account in your child’s name. Also keep in mind that relatives can contribute gifts to these accounts.
Having kids can be expensive, and an exciting milestone in any parent’s life. Every parent, child and family is unique and should make the decisions that work for them and their finances. Knowing some of these major money considerations early on can help you formulate a plan to prepare for a newborn baby.
Stick to the necessary essentials, and shop around for discounts and deals on baby-related expenses that could otherwise easily spiral out of control.
Spending some time now to manage your money wisely will ease the stress on your budget. create a plan that balances your day-to-day needs like paying off debt; sticking to a budget funding a child’s education, and help you stick to it.