Financial Planning When Having a Baby
As a new parent, you’ve probably learned enough medical terminology to pass for a junior OB-GYN, understanding complexities like epidural anesthesiology. However, studies show that you should pay equal attention to financial jargon, particularly the sections “529 tax-advantaged college savings” and “spousal IRAs.”
Focusing on the big picture is difficult for most new parents. You’re sleep-deprived, juggling naps and feeding schedules, and overjoyed about the new addition to your family. However, milestones are approaching, and you’ll want to plan for them while keeping your finances on track.
One thing that most parents wish they had known about being a parent is how costly having a child can be. Most of your expenses would rise; diapers, health insurance, and all that baby gear add up quickly.
Did you know that nearly two-thirds of households with young children save nothing for college or other child-related expenses, according to the Federal Reserve?
It is important to assess all the financial costs of having a child; this also goes for the amount you should spend during pregnancy. Below is a small guide to help with financial planning. It is also essential to reach out to an expert to help you decide what is best for you and your family in the future.
1. Be Aware of Pregnancy and Childbirth Costs
The costs of pregnancy, childbirth and postpartum care in the U.S are one of the highest in the world. Even if you have health insurance, having a baby is expensive. Early in pregnancy, you should estimate your expected costs.
Even with insurance, pregnancy and birth still cost nearly $3,000 in out-of-pocket expenses.
Because many births are not typical, prospective parents should budget for unexpected birth and postpartum expenses.
The precise cost of having a baby is difficult to predict. Preexisting health conditions and the baby’s spinal development can significantly raise the cost of an otherwise routine birth.
2. Keep Track of Your Spending
You’ll have to make a new budget. Then, keep track of your family’s expenses to get a better picture of your monthly spending. Keep receipts and notes on your phone or in a spreadsheet. When it comes time to crunch the numbers, this meticulous tracking will assist you in determining your family’s spending patterns, allowing you to identify potential areas where you might want to cut back when the baby arrives.
3. Think About Your Child’s Future
You and your partner should have some important conversations to inform many of the financial decisions you will make for your child in the coming months and years. Remember that any decisions you make now are not final, but the sooner you can talk about your feelings, the better.
What are your plans for your child while they are still young? While you may make such decisions quickly, kindergarten and middle school will be here before you know it. So, if you have an idea of what things you want them to experience, consider talking about it now so you can start making plans to make it happen.
4. Review Insurance
Adequate health insurance is essential, but you should consider life and disability insurance. Life insurance can pay for the things you’d like your family to have, such as a paid-off mortgage, school tuition, or a future wedding for your child. Life insurance can help protect your growing family by ensuring that financial resources are available to them if you die and provide peace of mind for your partner and loved ones.
5. Make changes to your HSA contributions.
HSAs, or health savings accounts, are a frequently overlooked pre-tax benefit that can be used to pay for a wide range of current and future healthcare expenses for you and your family.
Most importantly, any money you contribute but do not use in a given year will roll over to the following year and grow tax-free in the account. HSA contributions can be deducted from your paycheck if you are a qualifying employer-sponsored health plan member. Most people, however, do not use these to their full potential, but you should think about it, especially with a newborn’s increased health and wellness costs.
6. Create some savings accounts for your child.
Once your child is born, make sure to obtain a Social Security number for him or her, which you will need before you can open any financial accounts on their behalf.
If you intend to assist your child in paying for college, several college savings options are available to you now. A 529 plan sometimes is the best option due to its numerous tax advantages.
Some experts recommend having at least $20,000 in your emergency fund to ensure you have enough financial cushion. Even with insurance, you will need enough money to cover your deductible and any co-pays your insurance requires.
Adding a new family member comes with many new responsibilities, so don’t try to tackle them all at once. Prioritize your financial tasks and start with the most important ones.