Starting a family is one of the most momentous decisions a couple can make. It’s obviously an emotional decision, but also one that has serious financial ramifications.
With the cost of raising a child to age 18 exceeding $270,0001, it’s easy to overlook some of the more immediate costs of preparing to welcome a new addition into your lives. So, as soon as you know the baby is coming, and before you bring your new bundle of joy home, here is a list of things that need to be done to stay on top of the financial impact.
Build your emergency savings. Building an emergency fund should be a top priority. The purpose of your emergency reserve fund is to cover life’s contingencies, the unexpected that you need to be financially prepared for, such as a medical emergency, a job loss, a major repair, or a debilitating injury that could keep you from working. The general rule is to have at least six months of living expenses saved in a liquid account, like a savings account. However, with a new family member, you may want to increase it to 12 months to help cover a maternity or paternity leave of absence.
Make a spending plan. Of course, you know there will be additional food and baby supplies to purchase. But don’t forget the added costs of running a household with a baby. Energy and transportation costs tend to increase, as a baby requires more wash loads (for clothes and dishes), more heat, hot water, and more trips to the grocery and doctors. Your spending plan should include the added cost of health insurance and the savings you’ll want to set aside for a college education.
Research family leave. Check with your employers to determine what, if any, parental leave time or benefits are available and plan accordingly. If you’re not fortunate enough to have family leave benefits, you may want to start adding to your emergency reserve.
Research child care. The need for child care will likely arise at some point. With average child care costs for one child approaching $1,200 a month in the U.S.2, it would be important to have a plan in place. Begin the search now for child care options and alternatives in your neighborhood.
Legal arrangements. If you don’t have a will, get one. It should include specific guardianship arrangements. Be prepared to change your beneficiaries in your life insurance policies (making your child a contingent beneficiary).
Increase your protection. Speaking of life insurance, now would be the time to increase your coverage, especially for Mom if she’s not already pregnant. Some life insurers may want an expectant mother to wait until after the baby is born to issue a policy or issue one with a preferred rating. You should also consider increasing the liability coverage on your homeowners insurance, especially if you plan on hosting any playtime with the neighbors’ kids.
See a tax professional. When you have a baby, your tax situation will change, usually for the better. It would be important to talk with a tax professional to understand how your taxes will be affected by added exemptions, deductions and child credits. You may be able to incorporate any tax savings into your new spending plan.
Baby-proofing. Last, but certainly not least, you will need to completely baby-proof your house and yard. Download a baby-proofing guide or watch a video and don’t wait until the baby is born. Anything you can do to fully prepare ahead of time will save you money and give you greater peace of mind.
Use this your checklist to ensure that all the vital issues are addressed before your baby arrives.
Did we leave anything out? Add it to the list in the comments section below.
1 “The Cost of Raising a Child in the United States,” Investopedia, Jan. 9, 2022. https://www.investopedia.com/articles/personal-finance/090415/cost-raising-child-america.asp
2 “The cost of childcare has risen by 41% during the pandemic with families spending up to 20% of their salaries,” Fortune.com, Jan. 28, 2022. https://fortune.com/2022/01/28/the-cost-of-child-care-in-the-us-is-rising/