Six Financial Considerations For New Parents
Six financial considerations for new parents
Some say that having a child is a life-changing experience. While there’s amazing joy in watching your daughter take her first step or son speak his first words, there can also be a lot of stress when it comes to managing your family.
In order to make sense of what you’ll need to plan for, here are six considerations to make sure your family’s finances are stable, letting you enjoy more of those special moments.
Things are going to start getting very, very busy. With your new responsibilities and schedule, it can be easy to miss a utility payment or not correctly estimate the amount you’ll have to spend on groceries for the month.
Instead of guessing, use a budget. This does two things. First, it serves as a way to look ahead at what you should be spending, given your income. But second, it also serves as a checklist. When bills get paid, simply update your records and you’re done — no more second guessing if the credit card was paid on time.
As a bonus tip, there are handy apps on the market that can make running errands much easier and enable you to even save money. That means no more forgetting to buy something and having to go back out, or, worse yet, having both you and your spouse buying two of the same thing.
This is an area that you will likely want to review. In terms of health insurance, make sure you stop by your human resources department and determine how and when to add your baby to your plan. You’ll need to figure out if it makes sense to upgrade your plan or change altogether, as well as what information you’ll need to submit to your insurance company and when each item is due. Most insurers will cover costs, such as visits to a pediatrician, after your baby is born but before coverage is established, but you’ll need to add your child within about 30 days. Check with your insurance company for their specific deadline.
When it comes to life insurance, term insurance can be a way to gain a fair amount of coverage at a generally reasonable price. These plans typically cost less than permanent life insurance; the downside is they expire after a period of time. This can make sense for young parents, though, because you’ll still have some type of coverage even if you’re on a tight budget. Consult your financial planner or insurance advisor to examine what type of life coverage best suits your budget and family situation.
When making purchases for your baby, it can be tempting to want to have everything be top quality. But this quality can come with serious costs. You may want to opt for the best furniture and high-quality bedding and clothing, but in reality, these are areas where you can save some serious money. (And think, do you really need a $1,200 stroller?)
To help alleviate some of the costs of having a child, do your research on what you’ll need, what may be nice to have and what is unnecessary. From there, see what you can find on eBay, Craigslist or even from your family and friends. A little here and there adds up.
While this is also an expense, it has its own category for a reason. It can be very expensive. According to the Economic Policy Institute, depending on where you live, annual childcare costs can range from $4,822 in Mississippi or $5,857 in Tennessee, to upwards of $17,062 in Massachusetts and a shocking $22,631 in Washington, D.C.
One of the best ways to save on daycare is to not need it at all. If you can shift your schedule to share duties with your spouse, start there. But if you do need it, research your daycare options early so you can have a better choice of price and location. You won’t want to delay and be stuck with an expensive, inconvenient option.
Another way to save could be to take advantage of your employer’s flexible spending account, if available. The way this works is that you fund the account with pre-tax dollars, and money you spend on daycare can be withdrawn tax-free. The catch is anything left over in the account at year’s end goes away. Also, the most you can accumulate in this account each year is $5,000, and there may be income limitations for eligibility.
Lastly, check with friends and neighbors to see if anyone else is looking for childcare and how you may be able to share the responsibility with them. If two or three of you can reorganize your work schedules, you may not need to pay for childcare at all.
5. College Savings
Talk to your financial planning professional about 529 college savings plans. These plans are specifically engineered to have tax incentives, provided the money is spent on education-related expenses. There’s some flexibility on how much and how aggressive you can and should be, so it’s best to discuss your goals with a professional.
6. Retirement Fund
One thing that new parents can often forget is taking care of themselves. While making sure you get a meal after feeding your newborn is easier to remember than saving for retirement, it doesn’t mean that the latter isn’t important.
If you have a company-sponsored 401(k), your automatic deposits will keep you on track. But if you’ve been relying on an IRA or self-funded savings account with no regular payment system established, now is the time to get serious. Figure out what you can realistically budget each month and set up an auto-pay from your bank account.
Following these steps can really make a difference in your stress level when welcoming a newborn into the world. If done correctly, thinking about money won’t be the reason you’re having some sleepless nights.
Read this and other Forbes articles from Greg.
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