Finding out that you’re going to be a parent — whether for the first time or not — often brings about euphoria.
However, becoming a mom or dad involves a lot of financial preparation. There are many costs involved in birthing and caring for a child, from medical tests to delivery and feeding.
In a recent survey by Fatherly newsletter, a whopping 42% of fathers shared they weren’t financially ready to have a kid. Additionally, 23% of those who claimed to have enough money for a child realized they lacked essential savings like an education plan and life insurance.
Like most life milestones, it's essential to prepare for becoming a parent.
121 Financial Credit Union (121 FCU) has been elevating the lives of Jacksonville residents since 1935 through sound financial advice. Allow us to share with you how to financially prepare for a baby in nine months.
If you’re having a baby (congratulations, by the way), chat with your partner about its financial aspects. While any decision you make before your baby arrives may change after you give birth, it’s essential to discuss a few life-changing components.
Here are some considerations:
It’s essential to ponder on these factors as a pair because having a baby will impact your life in more ways than one. It will change you physically, emotionally, mentally, and spiritually.
Even if you have health insurance, having a baby can be costly. A University of Michigan study revealed that out-of-pocket expenses for new parents average $4,500.
In most cases, massive hospital bills affect families with high-deductible plans and those that require percentage-based coinsurance payments.
Many families have the wrong notion that having health insurance protects them from all childbirth costs. Unfortunately, many components require additional expenses, including:
It’s best to find out exactly what your health insurance will cover so you can save up for the rest of the expenses.
If you’ve never gotten life insurance on your own, having a baby in a few months should be enough motivation to buy a life insurance policy. It can replace income, pay off debt, and save your dependents from bankruptcy if you die prematurely.
Getting a plan before you have a baby can help you secure a lower rate.
If you have an existing plan, it’s time to review your benefits and determine if it still meets your needs. Keep in mind that having a child means someone will depend on your income for the next 20 years or so.
With the right plan on your side, you can give yourself and your partner peace of mind knowing that your child will be financially stable even if you pass away.
In most cases, babies visit their pediatricians within the first week. As you’ll see this doctor a lot over the coming years, choose the best one within your insurance network.
Ask your family and friends for recommendations. Later on, verify the coverage with your insurance provider so you don’t drown in out-of-network fees.
Check your company-sponsored life insurance and 401(k) plan to delete dated beneficiaries if necessary. Sometimes, people who start their jobs single fail to update their files.
Whenever you go through a lifestyle change, it’s best to recheck beneficiary statements. Keep in mind that your files might contain your parents, siblings, or ex-boyfriend or girlfriend.
Before you have a baby, think of how much time you or your partner will spend off work. It’s also best to learn whether or not your company will pay you during such a period.
The Family and Medical Leave Act (FMLA) requires US employers to provide employees up to 12 weeks of unpaid, job-protected leave annually. This act covers the following circumstances:
It’s essential to understand state laws and company policies to determine how much your leave will affect your income. Some companies offer superior benefits for parents.
Your baby’s arrival is the perfect opportunity to clean up your financial act.
Remember that any debt you have now — credit card debt, for example — will affect your future goals. This debt type by the thousands can hinder your ability to get loans for a home or a van.
The secret to achieving a balance between your income and your spending is to track all expenditures. Take note of all your monthly pre-baby expenses to gain a better picture of your expenses.
Once you discover patterns, you can cut down on unnecessary spending to make way for your new bundle of joy.
When you get a rough estimate of your out-of-pocket expenses and understand how your leave will impact your income, you can create a budget accordingly.
Make a list of non-negotiables (like a high-quality stroller), and then allot a budget for each item on your list. Once you record your needs, you can minimize your spending on unnecessary things.
Here are some of the most expensive costs associated with having a baby:
Also, you have to account for added monthly costs like child care, diapers, food, vitamins, etc.
Don’t feel overwhelmed with all the costs; you will get a little help from Uncle Sam. The White House boasts that The Child Tax Credit in the American Rescue Plan provides parents with historic Child Tax Credit Rates of up to $3,600 per child for children under six years old.
Parenting is an exhilarating escapade that can take you to Disneyland one day and then the emergency room the next. Before your baby arrives, prepare yourself for unexpected circumstances.
Having an emergency fund can be the difference between conveniently paying for a hospital trip after a swallowed LEGO piece and putting off other expenses to afford it. Ideally, you should have enough for three to six months worth of expenses.
Your emergency fund will protect you and your loved ones from being overwhelmed financially by unforeseeable circumstances. There will be many of them when you have a baby.
If you don’t have an emergency fund yet, now would be the perfect time to start one. You can dip into it anytime you need money for your baby.
However, given the emergency fund’s nature, it’s best to replenish it when you can.
Debt.org figures reveal that consumer debt as a whole has reached $14.9 trillion in the country, including mortgages, student loans, and auto loans. Debt is a reality for many Americans, and you should chip at it as much as you can before your baby arrives.
Keep in mind that having a child entails a slew of financial responsibilities.
However, don’t let debt discourage you from having a child if you’re ready for one. You can use several debt strategies to devise the perfect payment plan for you.
In most cases, individuals have a misconception that estate planning is only for rich people. However, this statement couldn’t be farther from the truth.
The term estate refers to all the assets you leave behind when you pass, including your 401(k) plan, bank account, home, and other properties. Through estate planning, you can make sure your assets go to the correct beneficiaries.
In our opinion, every parent should have one, no matter what age their kids are. Apart from managing your assets, an estate plan can help you care for your beneficiaries the way you want.
For example, you can specify who gets your children in case of incapacity or death through a will. You can also state how to split your assets and insurance payouts between beneficiaries.
The moment your child is born, make sure to get a Social Security number right away. It’s the first step in opening any financial account on your kid’s behalf.
If you want your child to experience financial freedom early in life, it’s essential to start saving early. Here are some of the financial accounts we recommend:
You and your partner may already have policies, but you should consider getting your child one too. In most cases, you can get policies at low rates when you get them for younger individuals.
If you purchase life insurance early on, you can lock in your child’s insurability throughout adulthood even after developing grave medical concerns or dangerous professions.
In most cases, you can open a custodial account — one you can control until you hand it over to your child at age 18. You can keep all the gifts families and friends send your kid under this account.
Doing so can help your child get a head start toward complete independence.
Recent college statistics reveal that the average cost of college education in the country is a whopping $35,720 annually. This amount will keep growing in the future, but you have around 18 years to save up for it!
Having a baby comes with various financial responsibilities, making it essential to prioritize important components. Medical bills and basic needs should be on top of your list, but you can start a college fund as soon as you get some financial breathing room.
We recommend checking out a 529 college savings plan.
We know how overwhelming having a new baby can be — but it’s worth it! A single smile from your child can melt all your troubles away.
However, adding another human being to your household comes with various expenses. As a parent, you become responsible for the welfare of your child.
The good news is, nine months of preparation can make a world of difference. If you have the right advisors by your side, you can plan for your baby’s arrival and future as early as now.
Get in touch with us to eliminate the daunting financial parts of having a baby. We’re here to help you enjoy the exciting world of parenthood.