Bringing home a baby is an amazing experience. Making sure you’re financially ready can make that experience even more rewarding. As your family grows, here are ways to ensure your financial position grows as well.
Make room (literally). Making room for baby often means adjusting your relationship, career, and lifestyle. But financially, it means making room in your home, car, and budget. Now that you know the big news, take a look around. You may find it’s time to remodel an extra bedroom or move to a new home altogether. Or, you may need to trade in your two-seater convertible for a four-door car. Either way, now is a good time to evaluate your needs and meet with a banking partner for a home equity loan, mortgage, or car loan.
As far as room in the budget, you should estimate the initial expenses you’ll incur after bringing baby home. Experts estimate that the one-time costs during the first year of baby’s life is $4,424. Plan on costs associated with gear, equipment, furnishing the nursery, feeding and bathing. Additional costs in the first year and beyond include clothing, health care and child care. A baby shower can help with initial expenses, but having a handle on the cost of baby can help you save, prepare and look for deals.
Scope out child care. As you embrace your future expenses, a big one to keep in mind is child care. And now is not too soon to make a plan. If you or your partner plans to stay home with the baby, it’s time to assess your budget, health care and investments. If you both will continue working outside the home, now is the time evaluate daycare options, which can run anywhere from $6,590 to $16,682 per year.
In addition to estimating costs, you’ll want to see if your child care provider has a wait list that you’ll want to get on right away. You should also see whether you can set aside child care money in a pre-tax Flexible Savings Account, or whether it’s a better idea to take the childcare tax credit on your annual taxes. A financial advisor can help you determine which option is best for you.
Review insurance. This advice takes many forms at various stages. As you prepare for baby, you’ll want to understand your health insurance and what is covered in terms of prenatal care, labor and delivery, and care and services after the baby is born. It’s important to evaluate your plan’s deductible, whether prescription drugs are covered – especially during delivery – and whether your doctor is in network. Before the baby arrives, you’ll also want to interview and establish an in-network pediatrician.
Once baby joins your family, you’ll have a specified amount of time to add your child to your health insurance. Now is also a good time to consider life insurance for your baby, and to adjust your beneficiaries on your own life insurance or your 401(k)s and IRAs.
If you don’t have life insurance, consider investing in a policy now. The advice for most expectant parents is to insure themselves for six to eight times their gross annual salary, at a minimum.
Plan for the future. This advice also covers a lot of ground. After the baby is born, write or adjust your will and designate a legal guardian so that your new little one is taken care of in the event of the unexpected. Also, plan for your own future by making sure you continue to invest in your retirement.
At the same time, another important component of your child’s future is college, and now is the best time to start saving. Right now the average tuition and fees for a four-year degree from a state school is almost $10,000 per year, plus another $10,000 for room and board.
There are two college savings plans you can choose from, and both offer tax-deferred growth. You can start investing right away and withdraw funds tax-free as long as they’re for qualified education expenses.
529 Plans let friends and family contribute, regardless of who opened the account, and they have higher contribution limits than other education savings accounts. The other savings option is an Education Savings Account or Coverdell account. These accounts are for couples who makes less than $220,000 a year together (or $110,000 individually), and contributions are limited to $2,000 per year until your child is 18. Regardless of which savings vehicle you choose, the important thing is to start putting money aside now. Eighteen years goes fast!
Having a baby means life is changing, but with planning and smart financial decisions, you can be ready for all that’s new. For more information about products and services that can keep your whole family on the right financial path, contact us.
