When our first child was born, we received a few gifts and loads of prayers and best wishes from family and friends. Sometimes, I wish we could convert some of those to cash. Later, I realized there was no single financial advice to prepare us for new parents’ and long-term financial implications. Not even from my parents or in-laws, and these are guys that have more experience than me, as you can imagine.
Most new parents find it challenging to focus on the big picture, and this isn’t easy. Added to your excitement of being a new parent are duties like juggling naps and feeding schedules. All these while you are sleep deprived.
Financial Tips For New Parents
According to the recent report by the U.S. Department of Agriculture, a middle-class family having a kid born in 2015 could expect to pay $233,610 ($284,570 adjusted for projected inflation) for meals, housing, childcare, schooling, and other childcare expenditures, starting from the child’s birth and when turn 18 years old. This figure doesn’t factor in the future cost of college.
Scared?! Well, that’s why we are here. Here are some personal finance tips for new parents that will guide and help you plan to be better prepared for the responsibility ahead.
Create A Budget For The Baby’s Arrival
Begin with a personal cash flow evaluation. Jot down all your sources of earnings, then compare this to your expenditures. Make sure you adjust your expenses to account for the extra costs of having and raising a child. Significant expenses may include formula, childcare, furniture, diapers, toys, medicals, amongst others. You would be amazed by the additional unexpected costs of raising a kid.
If you are a first-time parent, then you might be clueless about the cost of infant expenses for the first year. BabyCenter.com provides a baby cost calculator, which could help you estimate first-year expenses. Make sure your new budget accounts for the off time from work following the birth or a decline in income if a parent stays home with the baby.
If you realize your income is falling short, start looking for areas where it is possible to cut back. You might even place spending limits and do everything you can to adhere to them.
Have An Emergency Fund
Specialists and guardians with experience suggest putting aside a rainy day account of reserve funds equivalent to three to a half year of everyday costs. This fund should only be touched just on the off chance that you wind up confronting abrupt, critical costs, becoming jobless, or falling sick.
The very best place for the emergency fund will be in a liquid and easily accessible account, like regular savings accounts in financial institutions or credit unions, or other interest-bearing bank accounts. This account gives some interest on your deposits while you save and permits you to draw your cash whenever with no penalty.
You May Need Child Care Support After Birth
If both parents keep their paid jobs, you have to begin assessing your daycare choices even before the baby’s arrival. Top class facilities often have waiting lists, and you need to explore options like if your employer provides a Flexible Savings Account (FSA), you can use to cover child care utilizing before-tax bucks.
Find out more about the childcare tax credit and everything you’ve got to do to use your FSA and this tax credit.
Delay College Saving And Save for Retirement
In a perfect world, as new parents, you should have the ability to save for your retirement and your kid’s school education simultaneously, but this can be not easy to do. In case you need to choose, keep in mind that while college can be expensive, financial aid options are available. That’s not applicable for retirement.
As time passes, if you have more money, possibly as you advance in your career or find a raise, you should begin saving for your kid’s education later. The account’s earnings can be deducted tax-free if the cash is used to pay for qualified educational costs.
Estimate Prenatal Care Prices
In case you’ve got a regular employer-provided medical insurance program, delivery and medical care for a straightforward birth will cost approximately $2,250 from the pocket.
Ask Human Resources or your insurance company if they have present figures on out-of-pocket prices for prenatal care and delivery. So, you can put these expenses into your private finance plans.
Estimate Medical Expenses
Information collected by Fair Health, an independent nonprofit that oversees the country’s biggest database of privately billed health insurance claims, the price of giving birth always shocks new parents, with prices ranging from $5,017 to $10,413, based on your location.
These expenses become costlier to for a cesarean operation or when some complications arise during delivery. Also,l medical bills to accounts for include prenatal physician visits, ultrasounds, laboratory work, and other evaluations. After the baby arrives, there’s also postnatal maintenance, physician visits for disorders, potential drugs, along with other prospective procedures to take into account.
Purchase Life Insurance
Managing the spouse’s loss is tough, especially if that also involves learning how to become one parent as you mourn, but it does not need to become a financial setback. One approach to mitigate financial loss is by buying a life insurance program.
Since life insurance is supposed to replace the lost earnings of someone who dies, make sure to take into consideration how much your family will be affected if a parent dies. This could help you figure out whether or how much insurance to buy.
Rule of thumb: Your benefit should equal seven to ten times your yearly salary.
You can review your life insurance and disability insurance needs in light of your growing family. If you are young, term life insurance is cheap and necessary. You could have the ability to buy disability insurance through your company. If you do not understand just how much insurance you require, online calculators will help.
Write a Will
As emotional as this sounds, it’s crucial. You require a will to appoint a guardian for your children. You don’t have to know your child’s name or sex to include them in a Will. Please make an appointment with your lawyer or request them to recommend a lawyer who can assist you.
Consider what could befall your youngsters on the off chance that you and your partner were to pass on before turning out to be legal grown-ups. On the off chance that you want to have a say in this, you need a Will.
A Will lets you name a guardian for the child and a person to handle their money till they become adults. If you do not name a guardian for the child, a court will do it for you.
Start Acquiring Baby Gear
Talk to parents of a two-year-old what infant wears they used and which ones ended up being useless. When you are expecting, you will come across all types of promos than before, and it is not easy to understand what’s required and what is not. Register for promos from important retailers/websites to prevent getting repeat presents and hassle with yields.
Before purchasing any baby products brand new, start by looking for opportunities to borrow, swap, or second-hand store choices. You can get free baby things by joining neighborhood mom-swap groups through social networking. Optionally, look for second-hand options through neighborhood listings found online on Facebook Marketplace or websites that specialize in fairly used baby things like ThredUp.
Remember to look out for cool bargains around popular sales occasions. “Black Friday is a great time to buy any larger ticket items.
Set Money Gifts to some 529 Account
Most states provide 529 plans in education savings plans that help families save for college. Typically, your college choice isn’t influenced by which state your 529 plan is in. This account provides tax-free growth and withdrawals for faculty, and a few contributions might be tax-deductible.
Include Your Child in Health Insurance Plan
It is not irrational to expect that your medical insurance provider may contact you, or even better, automatically add your newborn to your health plan. After all, the provider ought to be aware that you had a baby. It does not work like that.
Fortunately, having a child is known as a qualifying life event, taking into account an enlistment period during which you can make amendments to your health plan or take on a completely new one.
By and large, most plans require that your kid is added inside 30 or 60 days post-conveyance. Whatever would typically be covered under this coverage that happens between enrollment and birth could be covered.
Personal and family finance takes a whole new dimension when there’s an addition to the family in the form of a newborn. I have seen couples break up or fall into a panic mood because they didn’t have any plans as the baby was coming. It doesn’t have to be that complicated, especially if you follow the tips I discussed above.
I always enjoy reading and learning from you. Please feel free to share your opinions and comments with me and others via the comment section.