Whether you’re expecting a little bundle of joy or already cradling one in your arms, congratulations! This is an exciting (and maybe slightly overwhelming) time. Along with the endless onesies and midnight feedings, there are important financial considerations to think about.
When it comes to your finances, there are key things to consider as you prepare for (or navigate) parenthood, so we have compiled a list of financial planning tips for expectant and new parents:
Budgeting for the Diaper Dollars
Let’s face it, babies are expensive. From diapers to daycare, formula to furniture, there’s a seemingly endless list of expenditures. But before you panic, take a deep breath, and assess your current budget.
Track your spending: Knowing where your money goes is the first step in making adjustments. Before tiny hands turn your finances upside down, it is important to understand where your money goes. You can use a budgeting app such as PocketGuard or YNAB.com, or simply track it in a notebook or Excel spreadsheet.
Prioritize and categorize: Once you have a clearer picture, categorize your expenses, prioritizing needs over wants. You might cut back on dining out or subscriptions in order to allocate more towards childcare or healthcare. This may be a time when money is tight, yet keeping an adequate emergency fund, and contributing to your retirement accounts should remain important.
Insurance Shuffle: Protecting Your Precious Cargo
Health insurance: Adding your newborn to your plan is crucial. Do it within 30 days of birth to avoid hassles. Explore options like COBRA if you’re temporarily off work.
Life insurance: Consider term life to protect your family financially if something happens to you. Choose a coverage amount that reflects your future needs.
Disability insurance: This can replace a portion of your income if you’re unable to work due to illness or injury. Disability insurance is crucial if you’re the primary breadwinner.
Investing for Tiny Tim (or Tina): Planting Seeds for the Future
Start small, dream big: Even a little invested each month can grow into a significant sum over time. The cost of college has been increasing by 5% year over year. The sooner you can start saving, the better.
529 plans: These tax-advantaged accounts are perfect for education savings. The money grows tax-deferred and can be withdrawn tax-free if used for qualified education expenses. If your state plan offers state tax deductions for contributions, choose that plan to maximize benefits. If not, refer to SavingforCollege.com for a highly-rated 529 plan.
UTMA/UGMA accounts: These accounts allow you to invest on your child’s behalf. Be aware that your child will gain control upon reaching adulthood (usually 18 or 21).
Traditional or Roth IRAs: If your child starts working young and has earned income, you or they can contribute to these accounts. Remember, long-term growth is key!
Pro Tip: Slash Childcare Costs with a Dependent Care Flexible Spending Account (FSA)
Think of it as a magic piggy bank for childcare expenses. You stash pre-tax dollars in there, then use them to pay for daycare, preschool, or even summer camps. The best part? You avoid taxes on that money, saving you big bucks.
Here’s the catch: you have to use it all up by year’s end. No hoarding allowed! But with a bit of planning, it’s a game-changer for your childcare budget. So, talk to your HR department and unlock this tax-saving treasure!
Don’t Forget Your Retirement Accounts – Review & Update Beneficiaries!
Your retirement accounts (401(k), 403(b), IRA, Roth IRAs, Pensions, etc.) have a designated beneficiary who inherits them upon your death. Having a baby might change who you want to receive those assets. It’s time to review and update your beneficiaries!
This is a simple step, often done online through your account provider. Simply log in, navigate to the beneficiary section, and make sure your precious little one (or whoever you choose) is included. It’s a quick way to ensure your financial legacy aligns with your evolving wishes.
The Power of Planning: Protecting Your Family
Will and Power of Attorney: These documents ensure your wishes are followed if something happens to you. In this document, you will appoint a guardian for your child.
Healthcare proxy: This allows someone to make medical decisions for you if you can’t.
Bonus Tip: Enjoy the ride!
Don’t let financial worries overshadow the magic of early parenthood. A bit of planning and organization when it comes to finances can ease the stress of becoming a new parent and help you enjoy what truly matters –the new member of your family! Remember, parenthood is a journey, not a sprint. Be flexible, adapt your plan as needed, and don’t hesitate to seek professional advice.
Congratulations again, and happy parenting!