Bringing a baby into the world can be exhilarating, and the anticipation of change can often be overwhelming for new parents. Suddenly, nine months feels like the blink of an eye when it comes to preparing for the expansion of your family. Not only will your life change overall, but the details of your finances and everyday nuances will suddenly become drastically different.
If you’re expecting your own bundle of joy, here are a few important steps to take as you welcome your new child into the world.
1. Clarify Your Employer’s Maternity and/or Paternity Policies
It’s important to begin your planning process by reviewing your company’s leave policies and if they provide paid time off for you and/or your spouse. You’ll want to confirm how much time you’ll be allowed to take – from unpaid leave to sick days and vacation days.
If you’re in a partnership, outline a plan for who will take time off when and if that time will be taken together or separately. If your employer does not offer paid or unpaid maternity leave, speak with your human resources representative to ensure you understand the options available to you.
2. Assess Your Life Insurance Policy
As a new parent, you’ll want to review your life insurance policy, or policies, to ensure that your beneficiaries are up-to-date and you have sufficient coverage. You may also want to assess other goals related to education spending, eliminating debt and salary changes.
Circumstances may warrant you to consider increasing your coverage to offer protection against any loss of lifestyle in the event of early death, especially if one parent plans to leave the workforce.
3. Insure Your Baby’s Health
Within 30 days of your child’s birth, review both parent’s health insurance (if applicable) and make sure your baby is added to your preferred policy. Take into account and clarify your coverage for deductibles, co-pays, vaccination schedules and appointments, as your baby will require frequent visits to the pediatrician, especially during their first year.
It’s very important that you’re comfortable with your child’s care and with a referral from your doctor, friends or family, you’re more likely to feel at ease. Selecting a pediatrician in your provider’s network is recommended, in order to receive the best coverage.
4. Review Estate Documents
There’s no better time to organize your estate documents than in preparation for a new family member. Drafting and executing your legal documents should include directives for guardianship, a living will and financial and medical power of attorney.
You may currently have trust documents in place, in which case it’s important to review them to ensure your beneficiaries are up-to-date. Once reviewed and executed, these documents should be safely stored along with your baby’s Social Security card, birth certificate and health records. Lastly, remember to send copies of your estate documents to your executors to have on record.
5. Consider Substantial Purchases
A growing family often means the need for a larger home, vehicle or other big purchases. Planning for these expenses and implementing a savings strategy can help ease associated financial concerns. Feeling more confident in your budget will allow you more time to explore solutions that ultimately fit your family’s needs.
You may not be purchasing a new home, but with the addition of a new baby, you will need to prepare by baby-proofing, designating changing stations and selecting the location of your bassinet or crib. Take into account the larger items on your registry, including car seats, strollers, baby monitors and cribs as these will be the items you’ll want to have in place before the baby arrives.
6. Construct a Budget
Having a budget is always a great idea in order to meet certain financial and lifestyle goals. It is amazing how much these little humans increase your family’s costs! Preparing for the outflow of cash you will undoubtedly experience now and in the future will help you from being caught off guard or surprised.
According to the U.S. Department of Agriculture’s most recent data, the average cost to raise a child until the age of 17 was $233,610 in 2015.1 This includes the cost of housing, food and childcare, but not a college education. Incorporating as much detail as possible into your budget including recurring items such as diapers, wipes, clothing, lotion, soaps and activities will help you prepare for the big-ticket items later on.
Childcare is another important component that should be factored into your budget. According to Care.com, the average weekly cost of daycare for toddlers is approximately $211, but prices can often range. Nannies can be even more costly at roughly $596 per week.2 Keep in mind that if even one parent plans on staying home after your child is born, the potential impact of lost wages and benefits exists.
7. Establish an Emergency Fund
If you have yet to establish an emergency fund, now is a great time to ensure your family is prepared for the unexpected. Three to six months of essential living expenses should be saved in an emergency fund, however, many families are more comfortable with having six to twelve months prepared. Take into account your current spending habits and set aside a comfortable amount that will ultimately accommodate your growing family.
8. Consider Your Baby’s Savings
When it comes to saving for your child’s future, there are a number of details to consider. Education can often be one of the more largest costs and according to the College Board, a moderate budget for an in-state public college in 2019-2020 averaged $26,590, whereas a moderate budget at a private college averaged $53,980.3 These include tuition, housing, meals, books as well as associated fees. Thankfully, 529 savings plans are now more flexible and allow funds to be used for K-12 education, as well as college costs.
For parents in search of a tax-advantaged savings account that isn’t limited to costs of education, a custodial account can be set up under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). These types of accounts protect the minor from tax consequences often associated with assets up to a specified value, until the child reaches legal age.4 Identifying goals for your child moving forward will be helpful as you develop a monthly savings goal to support your intentions.
Bringing a child into the world presents new challenges, but more importantly, so many joys. And although from the first nine months to the rest of your child’s lifetime there will be endless financial decisions to be made in order for your family to find success and happiness, the best step to take now is the first step towards understanding and securing your family’s financial future.