Becoming a parent is an undeniably exciting time. It’s also an undeniably expensive one. From car seats and diapers, to baby food and childcare, the list of expenses seems never-ending. However, just like any large financial commitment, a little planning can go a long way. Here are some key considerations and planning tips for new or expecting parents.
Budget, budget, budget
We don’t mean to sound like a broken record, but we can’t stress the importance of budgeting enough, especially when the financial commitment is as expensive and longterm as a child. First, come up with a list of all the new expenses you will be responsible for between now and the time your child is an adult. While you don’t need to have college tuition saved up by the time your little one is walking, it certainly helps to consider longterm costs early on. Try breaking expenses down annually. The first year, you might factor in medical bills, a crib, a diaper stash, a breast pump, and baby clothes, among other things. The second year, your budget might cut down on the medical bills, but tack on childcare. By year 10, maybe you’re thinking about back-to-school clothes, after-school soccer, and art classes. Again, you don’t need to panic if you don’t have the extra money lying around to pay for year 10 expenses at the time of birth, but thinking about them early on and planning accordingly can make a massive impact on your preparedness when the time eventually does come.
Once you’ve thought through the costs associated with your child, start comparing the annual budget to your existing budget. Chances are you’re going to be spending significantly more money now that you have an additional human in your care, and it’s likely that you’ll need to make adjustments elsewhere in your budget to compensate for the new spending. Maybe it’s time to stop coloring your hair each month, or maybe it means packing a lunch instead of eating out every day. Whatever your new budget looks like, it’s important to be prepared to face your evolving financial reality.
Build up your rainy day fund
If the pandemic taught us anything, it’s that a rainy day fund is a necessity. Emergencies can and do happen, and it’s always better to be overprepared than underprepared. While the thought of losing your job or getting sick and not being able to support yourself is always nerve-wracking, it’s especially daunting when you have children who rely on you. Aim to put 6-12 months of living expenses into an emergency fund as a comfortable cushion to fall back on in a time of need.
Add your child to your insurance policy
For most health insurance plans, you will have between 30 and 60 days from the date of birth or finalized adoption to add your new child to your health insurance policy. It’s worth doing a little research into various policies and premiums as you consider your new situation. In some cases, it might be worth jumping up to the next level of coverage and paying a higher premium, as you’ll likely be visiting the doctor more frequently with a little one on your hands. In two-parent dual-income households, it might be more cost-effective to keep one parent on a solo coverage plan, while adding children to the other parent’s “employee with children” plan. In any case, doing your due diligence and taking the time to compare your options can end up saving you money.
Start a college fund
The longer you save, the more money you’re likely to have when it’s time for your kid(s) to pursue higher education. State-sponsored 529 plans are ideal, as they allow students to make tax-free withdrawals for tuition and other relevant expenses, as well as offer financial aid advantages. Most 529 plans offer automatic investment options, where money is transferred from your bank account to the 529 plan, and some even offer contributions through payroll deduction. Additionally, some states offer parents tax breaks on their contributions to 529 accounts.
The Humphreys Group can help
There is a lot to consider when you’re a new or soon-to-be-new parent, and we understand that while it’s exciting, it’s likely a little stressful, too. If you’d like a second set of eyes on your financial plan as you begin to factor in your new family, consider scheduling a free consultation with a member of our team.