When you have a baby on the way, it’s hard to stay focused on one thing. You have to get the nursery ready, learn how to strap in the car seat and make sure you’re overstocked with baby essentials like diapers and wipes. What you may not think about is how the little nugget is going to impact your finances.
And this doesn’t just apply to first-time parents. Adding another child to your family will require adjusting things like your household budget and health insurance. To give your first or next little angel a solid financial foundation, here are some tips to get ready for a baby:
1. Get your budget on track
New babies come with a lot of new expenses. Even if your current budget has some wiggle room, you may need to sit down and reevaluate where your money goes. And if you’re having a hard time sticking to a budget, there’s no better reason to tighten the belt than a new child.
Whether you’re setting up a new budget or making adjustments, here are some costs to include:
- Pediatrician visits
- Equipment (crib, stroller, car seat, etc.)
- Diapers and wipes
- Formula (if needed)
- Daycare (if needed)
2. Reevaluate your insurance
Your health insurance and life insurance should be revisited before your baby arrives. Delivery and post delivery hospital bills can be very expensive, and with another dependent, you might want to consider a larger life insurance policy. If you need some pointers, these articles can help:
- Having a baby? You can enroll in or change your health coverage
- Health coverage if you're pregnant or plan to get pregnant
- A New Parent’s Guide to Life Insurance
3. Build an emergency fund
Peace of mind is a luxury when you have a new baby in the house. To lower your stress about a sudden financial issue, make sure you have an emergency fund in place. In fact, if you already have one, this is a great time to deposit a little extra if you can. If you’re building a new emergency fund, some simple ways to start strong include using your tax refund, work bonus or other lump sum of money outside of your regular paycheck.
4. Research your tax breaks
A lot has changed in recent years regarding tax breaks for parents, but the government still provides relief. First time parents may not know where to start and should be aware of the breaks they now get. For example, if you need child care, you may not know the benefits of a dependent care flexible spending account. Current parents expecting another child will get even more money back by claiming another dependent, so they should educate themselves as well. To learn more, check out this info from the IRS:
- Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents
- Five Things to Know About the Child Tax Credit
- Get Ready for Taxes: Here’s how the new tax law revised family tax credits
5. Write or update your will
This may not be something you want to think about with a baby on the way. However, if you want to make sure your estate is properly handled, you need a legal document that details your wishes. For more information, try these tips on creating a will and things you should know about writing a will.
6. Start saving for college now
Just like a retirement fund, time is a savings account’s best friend. So, if you plan to help pay for your child’s college education, starting as soon as you can is your best bet. A popular method is a 529 plan. The state tax deduction for contributions can vary by state, but the money is not subject to federal tax. And, some states allow the savings to go untaxed if they’re used for educational purposes such as tuition, books and room & board. Once you’re ready to get started, all you need is your baby’s Social Security number to open an account.
Plan like your baby depends on it
Preparing for a baby is a special time full of anticipation and wonder. And while it’s important to soak in every moment, you should also set aside time to get your finances in order. This way, once your precious gift arrives, you can look him or her in the eyes knowing you’ve given them a secure financial future.
*This article has been updated from its original posting on January, 2014.