9 Financial Tips For New Parents

Raising a child is a rewarding, life-changing event – but also expensive!

The average cost of raising a child from age 0-17 years according to a USDA study published in 2017 (based off a middle-income married couple with 2 kids in 2015), is $233,610.

If THAT was the average cost back then, can you imagine how much it costs TODAY?!

It’s mind boggling to think about. If you fall into the category.. It’s hugely important to prepare yourself with 9 financial tips for new parents. For inevitable costs ahead or unexpected life circumstances, get the knowledge to make the best decision.

1. Add Your Baby To Your Health Insurance

Having a baby is a life event that qualifies for a special health insurance enrollment. Usually, you’ll have 30-60 days to add your new child to your insurance policy. Check your health plan ahead of time to familiarize yourself with policies specific to your plan.

During this time, you may also wish to make adjustments to your existing plan that makes better financial sense for your newly expanded policy. Weigh the cost of your monthly premium against total out-of-pocket costs or co-pays for things like well-child visits, urgent care visits, prescriptions, and other medical expenses.

2. Create A Family Budget Plan

A cash flow analysis of your finances is a smart place to start. Simply compile a list of your monthly income streams and monthly expenses. Plan for the extra costs of having and raising a child. Significant expenditures include formula, childcare, furniture, and baby diapers. Other unexpected costs associated with child-rearing may surprise you.

Consider places where you may minimize costs if your income is falling short. You can audit all the stuff in your house and sell the material possessions that you haven’t touched in the past 12-24 months.

See if you can assign a job for every dollar that comes in every month. Stick to a specific expense plan or monthly budget. Invest the rest into one of the financial options discussed in this article.

3. Set Up A Health Savings Account

Health savings accounts (HSAs) are similar to personal savings accounts, but the funds are earmarked specifically for healthcare expenses. Even better, the funds in your health savings account are tax-deductible or pre-tax through payroll deduction.

Medical expenses for your new child are inevitable. You can use your HSA for a broad range of expenses, including doctor’s visits, over-the-counter medicine, baby food, and equipment like breast pumps. You get to pick your own quality and cost of care.

A nice feature of HSAs is that any funds designated to your account that go unused in a calendar year will continue to roll over until you choose to use them to pay medical expenses tax-free.

Health savings available when you need it with the swipe of a card in case your little one gets sick. That’s a comforting feeling for any new parent.

4. Build Up Your Emergency Fund

Unemployment is stressful in any circumstance, but it becomes much more difficult when your family is growing. That’s why, in the event of a layoff or job change, having an emergency fund that covers 6-12 months of living expenses is advantageous.

An emergency fund, which should be established following the new monthly family budget, provides a valuable buffer for a new parent seeking a new job. If your family is entirely reliant on the income of a single-family member, an emergency fund is vital.

Set up direct deposit that moves 5-10% of each paycheck into its own savings account. You don’t see it, touch it, nothing. It just automatically moves into a new account every 2 weeks like clockwork.

This is an easy way to invest into an emergency fund. Start saving using auto-pilot. You never even notice and in a short time, boom, exponential growth. Next thing you know, you’ll have a nice nest egg. Call it your emergency cash stash.

5. Buy Life Insurance Policy

Before purchasing a policy, you’ll want to decide on term life insurance or whole life insurance.

Term life insurance is available for a fixed period of years, and whole-life insurance is a form of permanent insurance that is more expensive than term life insurance.

You can purchase term life insurance for a 10, 15, 20, and sometimes even 30-year term. Term life insurance will offer a lower monthly rate that will increase based on your age and health when you renew your policy.

Purchasing life insurance is one way to compensate for the financial loss while dealing with the awful reality of losing a spouse. For the unfortunate who experience this it doesn’t have to be a financial setback.

Because life insurance is intended to replace a person's lost salary, consider the financial impact on your family if either parent died. This may help you decide on insurance and how much to buy. Severance compensation should be 7-10x yearly income.

Life insurance is an affordable way to financially protect you and your loved ones in the event of your death. Monthly premiums will cost you more or less, depending on your age and overall health. If you are generally healthy without pre-existing conditions, you and your partner should qualify for inexpensive rates.

New Parent Steps Tip: Check to see if you qualify for life insurance benefits through your employer. Companies will often provide discounted life insurance coverage for employees and their dependents.

6. Update Your Taxes To Claim Child Tax Credits

As a new parent, you might be eligible for many tax benefits, including the Child Tax Credit, depending upon your annual household income. This credit will help to lower your taxable income. Update your tax status now that you’re a new parent.

Adding your child to your tax forms also allows you to claim an additional dependent, which gives you the option to lower certain payroll tax withholdings. You may also wish to explore additional opportunities for tax savings, like the Earned Income Tax Credit and the Child & Dependent Care Credit.

7. Take Into Account Long-Term Disability Insurance

While whole life insurance provides financial stability in the case of your death, disability insurance provides coverage if you get sick or injured and are unable to work. Because disability insurance covers a percentage of your income for a certain length of time, it's critical to think about your current income, current expenditure, and current savings when choosing a policy.

Disability insurance may be bought for a short or extended period and is often offered via your employer or a commercial source. Keep in mind that your living expenses will rise in parallel with the birth of your kid while considering coverage.

8. Build Your Own Retirement Portfolio

Even if it involves having to post-pone college savings, it would be ideal if new parents could prepare for retirement and their child's college tuition simultaneously. Unfortunately, this is not always realistic. If you must choose, bear in mind that, although college might be expensive, there are financial aid options. This is less true in the event of retirement.

There are many retirement options like investing in a traditional IRA, stocks, commodities like gold and silver or your work’s 401k program. This is especially good if your employer offers a matching 401k contribution program.

Provided you have additional money available over time, such as via a promotion or raise, you may begin saving for your child's education later. The profits from your account may be withdrawn tax-free if the money is used to pay for acceptable educational expenses.

9. Write A Will And Choose Beneficiaries

While it’s difficult to imagine the possibility of you or your partner’s untimely death, creating a will is the best way to protect your toddler by ensuring they are raised and provided for according to your wishes. Having a legal will in place will give you and your partner great peace of mind.

In addition to financial protection, a will gives you the ability to determine who will oversee your estate and allows you to designate a legal guardian for your child. Better prepare for your baby’s future by setting them up for success in case of the untimely event that you can’t be there to do it in person.

What is the First Step in Financial Planning for a Baby?

While you may not always have control over your own or your child's health, taking actionable steps now may help you plan for a variety of future financial demands. Develop financial goals to assist your family in achieving financial stability.

We hoped you enjoyed the quick snapshot about financial planning for baby's future. Positioning yourself for success because the average cost to raise is high. Get ahead of the curve today and start securing your child’s future! 

Sourcing:

Expenditures on Children by Families, 2015 - USDA study.