If all those cute babies in the grocery store have you and your partner thinking about becoming parents, there's something less fun, but equally important that you should think about first-how a family will affect your finances. No one decides whether to start a family based on the cost, but it's smart to get a good understanding of how adding a new family member will affect your financial situation so you can plan ahead for a secure future:
Get your budget on track. If you haven't made a budget yet or aren't doing the best job of sticking with your budget, now is the time to get serious about living within your means. If you have credit card debt, include a plan to pay the debt down in your budget. Once you know what your income and expenses are pre-baby, you can do some research to estimate the additional expenses you'll have once the baby arrives, like:
- daycare (usually the biggest expense)
- pediatrician's visits
- formula and food
- equipment (crib, stroller, car seat etc.)
That information can help you decide how much you should cut current extra expenses like entertainment, dining out and cable to put money aside for your new expenses. Getting your budget in order can also help you decide how long you can afford to take off work after the baby arrives or if one of you can quit and stay home. - Build an emergency fund. Financial experts advise that you have three to six months' worth of savings, whether you have kids or not. If you have a savings account, increase the amount you put aside each pay before your child arrives to reach that goal. If you don't have any savings, start building that cushion. A good way to jumpstart your savings is to have your tax refund or work bonus directly deposited into a savings account. - Get the right insurance. Review your health plan to make sure maternity and well-baby care are covered. You need to add your baby to your plan within 30 days of birth or adoption. You should also check out your life insurance options. Term life, which pays a set amount if you die, is usually the least expensive option. - Explore flexible savings accounts and other employee benefits. If your employer offers flexible savings accounts for health care and dependent care, sign up and start making contributions to cover the cost of deductibles and co-pays associated with maternity care and the cost of daycare, which is especially high for newborns. If you're adopting, check and see if your employer offers help with adoption expenses. - Make a will. If you don't have a will, now is the time to make one. Be sure to choose a guardian who is willing to care for your child and oversee his or her finances. You should also check and update your beneficiaries on life insurance policies, retirement plans and other accounts.
Though you can find many articles that insist now is the time to start saving for your child's college education, some financial specialists believe it's far more important to build your emergency savings and put away money for retirement first.