Six financial tips for starting a familySunday 2 August 2020 | Reading Time: 5 minutes
Deciding to start a family is a big, life-changing decision that requires financial planning. According to the U.S. Department of Agriculture data, a middle-class family can easily spend a quarter-million dollars raising a child until he or she is ready to leave for college. To take care of your new family's needs, you need to evaluate your finances and prepare them. Here are six ways to get started before the baby arrives.
1. Create a new budget
Like most budgets, start by doing your research. You’re going to need to start calculating items like baby clothes, food, nursery items, diapers, daycare, and other essential items into your budget. The better idea you have of what you will need to spend on childcare, the better prepared you will be when the time comes. Your world is about to change, so be open to making sacrifices and cutting down some current costs to make room for the anticipated ones.
Don’t forget to include new medical expenses in your budget. A new baby means ultrasounds and labor costs, not to mention the need for vaccinations and regular check-ups. Start by talking with your health insurance provider to find out how much coverage you have for hospital bills. It is better to be prepared for the expenses than to be surprised. Including the estimated hospital costs in your budget ahead of time can give you time to save and will help prevent stress down the road.
Another consideration is health insurance. You will need to determine how you want your child to be covered under a policy, so be sure to spend some time researching options. If you want to keep your current health insurance, you may need to change your plan to cover your baby, so talk to your health insurance provider about alternatives and costs.
2. Research your employer benefits
Your job may offer benefits for new mothers and fathers, such as paid and unpaid parental leave and benefits such as flexible spending accounts (FSA), which allow you to save money for medical expenses pre-tax. Talk to the company HR department to see what is offered and what you are eligible for.
If your employer offers a 401(k) retirement account, contribute to it so you can grow your nest egg. Retirement may seem like a long way off, but ensuring you have enough money to live out your golden years can take the financial pressure off your kids. Many employers also offer a 401(k) match. Be sure to find out about the contribution match levels so you can take advantage of them.
3. Purchase life insurance
If something happens to you, how will your child’s living costs be covered? That’s where life insurance comes in. If you pass away, it can help bring your family some financial security by replacing the income needed to maintain their lifestyle. It can also help deal with outstanding debts, mortgages, and your child’s education. Two types of life insurance policies to consider are term and permanent. Term life insurance will cover you for a specific, pre-determined period of time. Should you die within that period and your policy is kept active, the insurance pays the death benefit to your beneficiaries. Term life is popular for most families and it is typically cheaper than permanent life insurance. Another policy option, permanent life insurance, never expires, unlike term life insurance, and combines a death benefit with a potential cash value component. Make sure to speak with a financial professional to find the right life insurance policy for you and your family.
4. Protect your family with an estate plan
Having an estate plan in place can protect your family’s future. Estate planning includes more than just what you’d like to leave behind for your children in a will, it also involves deciding who will manage your estate as an executor, and who will look after you and your child if something happens and you aren’t able to make decisions on your own.
Research your estate planning options and don’t be afraid to contact a professional for more information. Schedule a time to meet with an attorney before your child is born. An attorney will draft your wills and provide other important documents such as living wills, health care proxies, and powers of attorney.
5. Pay off credit card debt
Having a child is likely to be very expensive, so you should consider paying off what debt you can now. Review your records and see where you have debt. If you are struggling to keep up with payments or your balance is growing, you may be living beyond your means. To get back on track before the baby arrives try transferring balances to a low-interest credit card to consolidate your debt. Then cut your spending down. Trim away at expenses like dining out and cable, and put that money toward your financial freedom. Not only will this help reduce what you owe to creditors, but it will also improve your credit score and give you some practice navigating the new expenses associated with kids.
6. Establish an emergency fund
If you get in an accident, lose your job, or there’s an emergency in the world like the COVID-19 pandemic, you may have difficulty supporting your family. That is why it’s a good idea to set up an emergency fund before your new baby arrives. Aim to save at least three to six months of expenses. The more money you can put in the fund, the more breathing room you will have if an emergency occurs. If you have a family, you may even want to consider building an emergency fund that can cover a year’s worth of expenses. Start by calculating how much you spend each month on essential items and determine what you can cut out if something bad happens. Starting an emergency fund now will make it much easier to deal with a crisis if it comes.