How to Prepare Financially for Parenthood
July 16, 2018
By Tyler Zellmer • Relationship Manager
When a couple decides to start a family, there are a lot of things to prepare for. In addition to painting the nursery and stocking up on diapers, parents-to-be need to get their finances ready for the new baby. Here are a few financial preparations you may want to make.
Your bundle of joy will cost you a bundle. According to the U.S. Department of Agriculture, it could cost the average U.S. family over $233,610 (in 2015 dollars) to raise a child through age 17; this estimate doesn't include the cost of college! So, it's a good idea to start saving now. Even saving a small amount each week can add up quickly. Another smart move: Deposit any financial gifts you receive in an account you set up for your child's college expenses.
Begin to Budget
Figuring out your anticipated future income and expenses ahead of time will help you prepare. Be sure to include any childcare costs you anticipate having in your budget. Couples may need to adjust their spending to accommodate a change in income or added expenses. You may want to make any adjustments now and save the difference to give your savings a boost before baby arrives.
Deal With Debt
Couples who have large mortgages and car payments and a significant amount of credit card debt may want to make some changes before their baby is born. This may be a good time to sit down with a financial professional to go over priorities and come up with a realistic spending plan. Take control of any debt you have now before your expenses increase.
Consider Your Health Care Coverage
Before baby arrives, check your health care plan's maternity and pediatric coverage. You'll want to know if there are any out-of-pocket expenses you should budget for. For instance, does your policy provide for well-baby care? If not, you need to be prepared to cover such costs yourself. Note that if the spouse whose employer provided the family's health care coverage is giving up his or her job, the family will need another health care plan.
Prepare Your Estate Plan
The imminent arrival of a new baby may not seem like the time to look at your estate plan. Yet, responsible parents will want to make sure their new arrival will be taken care of in a worst-case situation. Check your life insurance coverage to see if it would provide enough for your child's future, including college. You may have to budget for higher premiums to protect your family's future financial security. Consider purchasing disability insurance in case of an accident or illness. And parents should update their wills, if necessary, and choose a guardian for the child.
Take Care of Taxes
Once your new little "dependent" arrives, make sure you review the number of allowances you are claiming for income tax withholding purposes. When your new baby is born, obtain a Social Security number for the child so you can claim a dependency exemption. It may be convenient to apply for a Social Security number at the hospital at the same time you apply for a birth certificate. Also look into claiming the child tax credit on your return.