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TL:DR; Creating a stable financial foundation will help you handle the road ahead. Organize your family finances: reduce debt, increase income, check insurance coverage and set a budget. Consider child care and parental leave. Start investing for the future.
Expanding your family is exciting and scary.
If you’re thinking about having children, or if you are already having them, there are a number of things to consider.
Based on the US department of agriculture, parents can expect to pay more than $233,000 to raise a child from birth to the age of 17.
With a little bit of financial planning, you can create a stable financial foundation that will help you better handle any unexpected expenses down the road.
We've put together a complete guide with tips for every step of the way.
1. Organize your finances if you have time before you set out to expand your family.
2. Continue with financial planning tips when the baby is on the way.
3. Set your newborn baby up for a secure financial future with additional tips after the baby comes.
Create a stable financial foundation that will help you better handle any unexpected expenses down the road
Here we go.
Thinking of having a baby but not sure you're ready financially?
Start here.
Discover different ways to get your family finances in order and create a stable financial foundation for the road ahead:
One of the first things you can do to prepare for the costs that come with expanding your family is to reduce your debt.
Start by having a conversation with your partner and mapping out all of your debt.
Include student loans, credit card debt, car loans and mortgages.
Once you have a clear picture of all of your debt, start making payments on the accounts that have high interest rates first.
These are the accounts that will cost you the most in interest.
Reducing your debt will free up income to pay for the additional costs that come from raising a child.
The average American makes a monthly payment of $300 on student loan payments and $458 on personal loans, based on a LendingTree study. Paying down some of those debts can free up cashflow for other expenses.
If you feel a little overwhelmed and not sure where to start, the National Foundation for Credit Counseling can help build a personal plan to tackle debt.
If you haven't already, now is the time to start setting aside funds for unexpected expenses.
A rainy-day fund or emergency fund comes in handy when you have unexpected health-related costs, loss of income, or anything else that requires urgent attention.
You can open a high-yield savings account to set funds aside and earn some interest.
Having this kind of financial cushion can help protect you from debt.
Aim to have 3-6 months of your family's monthly living expenses. If you ever need to use the funds, make it a goal to replenish them as soon as you can.
Having a monthly budget is a major step in organizing your household finances.
Start by writing down all of your income sources. Include salaries, government benefits, rental income, and any other income.
Next, list all of your expenses. This should include housing & utility costs, groceries, car payments, insurance costs, entertainment, clothing, and more.
Once you have everything on paper, compare your income to your expenses.
If you have a surplus, congrats! Save the difference. Put it into emergency savings, your retirement investments, or an investment account for other goals.
If you have more expenses than income, try adjusting your spending. The goal is to get to a point where you spend less than you make.
Modern tools like Mint can help you get this done easily. Mint connects to your bank accounts and credit cards, showing all of your income and expenses in one central place.
Typically the biggest categories on a family budget are housing, food, and transportation. Focus on these to find the best way to save costs.
The US does not offer paid parental leave by law on a federal level. It only guarantees 12 weeks of unpaid, job-protected leave in a 12 month period for the birth of a child or an adoption.
There are some states that offer 8-12 weeks of paid family leave. The majority of states don't.
In most places in the US, it's up to the employers to decide whether or not to pay you while you care for your new child.
This would be a good time to talk to HR and look at your company's parental leave policy.
Does your employer offer paid leave? For how long?
Is paternity leave an option, or only maternity leave?
Does your employer provide any additional job-protected leave beyond the federal law?
In most places in the US, it's up to the employers to decide whether or not to pay you while you care for your new child.
If you have enough time, you could even consider moving to a different company with a better parental leave policy.
When you have a new child at home, things get hectic.
Use your free time and energy now to focus on increasing your income before the baby comes.
Making a little extra cash now, even temporarily, can help down the line when your child is born.
You can start a side hustle, work overtime, or look at other opportunities to bring in more money.
If you can, try to increase your steady income.
Ask your employer about advancement opportunities, or if your performance has been good, simply ask for a salary increase.
Changing jobs is another way to secure a salary increase.
You can later use the extra cash flow to cover medical expenses and child care.
If you're thinking of buying a home for your family or a new car to travel with your new baby, improve your credit score.
Your credit score can determine the interest the lenders provide you.
Even a 20 point difference can have an impact of hundreds of dollars in a monthly payment.
Are you expecting soon? in the final stages of an adoption process?
Congratulations!
Here are a few steps to take financially when preparing for a baby:
We said it before, and we'll say it again. Take a look at your debt.
Try to pay it down.
Lower your expenses temporarily, get some extra cash, and pay down your debts.
This will lower your monthly payments and free up cash flow for when you need it down the line.
First, check your employer's parental leave policies.
Does your employer offer paid parental leave? If so, for how long?
Try to think of how long you want to spend with your new child at home.
If your employer only partially covers your salary, or worse, doesn't cover at all, you need to have a plan to pay for your living expenses while on leave.
If you've already saved up an emergency fund, try not to use it. Instead, create another fund - a parental leave fund.
Save enough to cover however many weeks of living expenses you want to take leave for.
Look at your health insurance pregnancy, childbirth and child care coverage.
Try to estimate your overall medical bills.
What are your copays for prenatal visits?
What is your deductible?
Does your plan cover your hospital stay while giving birth? If so, for how many days?
Are emergency room visits covered?
What other costs are not covered by your health insurance plan?
Knowing what to expect on your medical bills can help you save money to better prepare for the costs.
If your yearly deductible is at least $1,400 for individuals and $2,800 for families, you may qualify to open an Health Savings Account.
An HSA is financial account you can open and deposit money into to pay for medical expenses, while reducing your income taxes.
It's always good to connect with people who have similar experiences.
You can learn from other parents in your area about the affordable child care, where to get good baby supplies, and how to find pediatricians in your network.
Knowledge is power.
Whether you choose to have one parent to staying home, taking your baby to daycare, or hiring a nanny, childcare will be one of your biggest cost going into this new chapter in life.
Talk about the pros and cons of each option with your partner before making a decision.
You can also look at the cost of living in your area and what type of childcare will be available to you.
Having a baby is one of the happiest occasions, not just for the parents, but for the whole family.
A baby shower is an opportunity for the entire family and friend group to celebrate the new baby's coming.
It's also a chance to get some support from them.
Create a baby registry and share it with family members and your circle of support.
The best baby registry will have everything you want, and make it easy for your family and friends to support you in these happiest of times.
People want to help, it brings them happiness.
If you already have everything you need for the baby, add a baby fund registry with financial goals for your baby.
Before the baby arrives, make sure to update your monthly budget.
Baby clothes are cute, but they can get expensive!
There are a few additional expense you can expect when having a baby.
Whether a parent stays at home, you send the baby to daycare, or hire a nanny, childcare is one of the biggest expenses you can expect.
Babies need at least 2,000 diapers in the first year alone. This makes diapers one of the biggest expenses you should expect for your baby.
Other expenses include medical bills, baby clothes, and baby gear.
You should begin searching for a pediatrician before the baby arrives. To manage your costs, look for a pediatrician within your health insurance network.
If you know other parents in the neighborhood, ask them for recommendations.
You may want to meet more than one doctor to make sure it's a good fit.
Make sure your loved ones and new-to-be dependents are taken care of in the unfortunate event of an untimely death.
Purchasing life insurance for the main provider can protect your family financially.
Make sure to get enough coverage to prevent any financial hardships down the road.
Life insurance is a must have for new parents.
Consider purchasing life insurance early in the pregnancy or even after giving birth.
The baby is here, and the excitement is palpable!
But don’t let the excitement get in the way of financial planning.
You’ll want to make sure that you have a plan in place to ensure your child’s future.
Here are some suggestions:
While still at the hospital, fill out the forms for a birth certificate and social security number.
A social security number is used to open your baby any type of bank account or investment account, get tax benefits, or apply to any government services.
One of the first steps to take care of financially is to add your child to your health insurance coverage.
Contact your health insurance provider and let them know you have a new addition to your family.
Do you want your baby to go to college? How about starting a business someday? Maybe a down payment on a house?
Start early.
Investing for kids can set them up for a bright financial future.
If you're looking to save for college and pay for education expenses, open a 529 plan.
If you want more flexibility in choices in the future, consider opening a custodial investment account, or a UTMA account.
Different types of investment accounts for kids can help achieve different financial goals.
For example, UTMA accounts are taxed at the child's level up to a certain amount, providing significant tax savings.
The best UTMA accounts offer an easy to use investing experience, low fees, and investment options that fit your investment knowledge and strategy.
If you're not sure where to invest, consider opening a savings account for your child. Setting money aside is the first step to building your child's savings.
Kids have a long time for compound interest to work its magic. Even starting with $20 a month can add up.
Figure out how much you can afford monthly and set up an auto deposit.
Get financial gifts for your kids.
Open a gifting page on Greatest Gift and let your family members and friends know how they can invest in your little one's future.
A will dictates what to do with a person's belongings and who should take care of the person’s children in the event that the person dies.
Becoming a parent is one of the biggest responsibilities in the world. It is also one of the most life-changing events you will ever experience.
As a parent, you want to make sure your child is taken care of should something happen to you.
This can be accomplished through estate planning and creating a will.
If you have many assets and want to prevent irresponsible spending, consider setting up a Trust.
The addition of a child to your family is a joyful event. It also brings with it a number of tax breaks for your family.
The Child Tax Credit offers a dollar-for-dollar tax reduction and potential lump sum payout.
If you pay for child care that allows you to go to work, you may be eligible for the Child and Dependent Care Credit.
Talk to your tax advisor for all the ways you can reduce your taxes and get refunds from the government for child related expenses.
As soon as your baby has a social security number, consider opening a savings account in their name.
Believe it or not, there's no minimum age requirement for this.
Starting an account early can be a wonderful way to kickstart your child's financial future.
Not only does it give you a place to deposit any monetary gifts your baby might receive, but it also sets the stage for teaching them about saving and financial responsibility as they grow older.
This simple step could be the first building block in a lifetime of financial savvy for your child.
The financial burden of having kids can be overwhelming at first glance - but with proper planning and preparation, it doesn’t have to be.
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