Checklist: I Want to Financially Prepare for a New Baby
When it comes to major lifestyle changes, few events can compete with welcoming a new baby into your home. But sleep isn’t the only thing that’s greatly affected by this significant milestone—your finances may also take a hit.
That’s why, in the midst of all the excitement, many new parents begin to feel overwhelmed—both emotionally and financially.
If you’re not sure how to begin financially preparing for a baby, our handy checklist can be a good place to start. It highlights 10 key money to-dos that can help carry you from the moment you begin thinking about becoming pregnant all the way through to your baby’s first year.
Review your budget.
News flash: It’s expensive to be a parent! According to an August 2014 report from the U.S. Department of Agriculture, raising a child for 18 years will set you back nearly a quarter of a million dollars—so reviewing your budget before you’re even pregnant can be a smart financial move.
You can start by analyzing both your fixed and flexible monthly expenses, so you can figure out where you may be able to free up some cash to put toward an account that you designate specifically for baby savings.
And be sure to pay attention to where you may need to spend more now in order to accommodate your baby later—like moving to a bigger home—and then create a plan that’s designed to help you afford it.
Consider purchasing life insurance.
We won’t sugarcoat it: If you’re thinking about starting a family, life insurance can be an important consideration. When people depend on you for financial support, it’s wise to consider having a plan in place to help ensure they’ll be covered in the event that you unexpectedly pass away.
A life insurance policy that’s in force—this means it’s active and in good standing—can make up for your lost income and help provide for your family’s living and educational expenses down the line.
Determine how much parental leave time your employer offers.
After you become pregnant, one of your first money to-dos may be to familiarize yourself with your employer’s maternity and paternity leave policies, which are typically detailed in an employee handbook that’s available through your Human Resources department.
Many large, well-established companies provide about six weeks of paid maternity leave. However, if you work at a smaller company with more modest benefits, you may have to get a bit creative in order to afford the time away from work.
To DIY your parental leave, you can cobble together other types of paid time off offered through your employer—sick days, personal days and vacation time—and also look into short-term disability insurance benefits. Additionally, you can supplement that time off with paid disability benefits that are available through some states, or with 12 weeks of unpaid leave, thanks to the U.S. Department of Labor’s Family and Medical Leave Act of 1993.
Decide whether you’ll work once your baby is born.
Now’s the time to start thinking about when—or even if—you’ll return to the office once your maternity or paternity leave is up. Do you want to consider a part-time arrangement? Or would you rather stay home full time instead?
If you’re leaning toward reducing your work schedule, refer to your newly refreshed budget and calculate whether you can still cover your baby-related expenses without your full-time salary. And don’t forget to factor in one of your biggest baby costs: child care.
If the basic math works, try committing to a trial run while you’re pregnant—tapping only a portion of your salary to pay your expenses—to simulate the experience of living off a lower salary.
Review your health insurance.
If you and your spouse are covered by separate health insurance plans, examine each policy and decide which one would suit your baby best, based on premiums, access to doctors you trust and how much coverage you’ll get for regular pediatrician visits, medications, vaccines and hospitalizations.
It may not be critical to adjust your health insurance plan before your child is born—typically, babies are automatically covered under your policy for the first 30 days of life—but it’s generally a good idea to prepare now so that when the sleepless nights take over, you won’t have to worry about this to-do in the first month of new parenthood.
Put a plan in place for child care.
If you plan to return to work after your parental leave time has expired, it may be a good idea to start making arrangements for child care before your baby is born. Some new parents are fortunate enough to have family nearby who can take care of their baby during the week, but if this isn’t possible for you, start researching and comparing your options.
Based on your location, the average annual cost of infant day care at a center, where spots are often limited, can range anywhere from $4,822 to $17,062, according to a 2015 report by Child Care Aware. Nannies, on the other hand, can run you about $3,972 to $10,666 a year.
So do your homework to decide the best fit for your growing family and what your budget can comfortably sustain while you still have enough time to adequately weigh your options.
Save for college.
When your baby finally arrives, it’s officially time to start thinking about saving for … college. We know, we know. You’re still discussing how to afford those astronomical day care bills, but in-state college tuition alone was just over $9,000 for the 2015-16 school year, according to the College Board—and that figure isn’t likely to decrease by the time your newborn turns 18.
Once your baby has a Social Security number, get a jump on this major financial consideration by looking into tax-advantaged savings vehicles that you can start contributing to now.
And when your kid is old enough to earn an allowance, think about transferring a portion of that piggy bank balance to the college fund, teaching the importance of saving for education early on.
Be smart about new baby buys.
With so many adorable items for sale that you can’t possibly live without, it’s easy to get carried away when you have a new baby. But splurging all of the time—say, on that over-the-top jogging stroller you’ve been eyeing—can be a big-time budget-buster. So when it comes to your post-baby budget, focus on covering the key basics at first.
And a word to the (financially) wise: Take advantage of hand-me-downs from family and friends when it comes to clothes, books and toys. As for safety-related items—cribs, car seats and high chairs—it’s worth the money to buy new to help ensure your baby is always secure.
Establish a plan for your estate.
During the first few months of your new baby’s life, writing a will can be an especially important to-do because it can include a designation of who will raise your child should something happen to you—and it can state the manner in which your child will inherit your assets. If you don’t have a will, your possessions—and your child’s guardianship—are left to the courts, potentially making a tragic situation even worse.
If you have considerable assets, this can also be the time to consider creating a trust, which will allow your estate to skip the drawn-out probate process and help ensure that your children receive your assets whenever and however you want them to be doled out.
Rebalance your budget.
By your baby’s one-year mark, you should be well-versed in the practice of revisiting your spending plan often—a good money habit that should serve you well as your little one gets older. Bottom line: Just as your own expenses and priorities evolve as you age, so do your child’s.
For example, your grocery bills will likely increase once your kid is older, but you’ll also no longer have to pay for diapers. And once your child starts school, your day-care costs can change significantly. So continuing to rebalance your budget as your day-to-day expenses shift will not only help protect your own financial security, but also set the right example for your kids as they grow into adults.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed or linked to in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.