Welcoming a new member into your family? Congratulations! Nothing changes your life quite like a new baby! What an exciting time; your mind is probably racing with ideas for how you may want to decorate the nursery and names for the baby. But it’s perfectly normal to feel other emotions too, like nervousness or even full-fledged anxiety. I remember staying awake at night thinking, “Will I be a good parent?,” “Am I ready for this?,” “Can we afford a baby?” I didn’t know it at the time, but the answer to all three of my questions was a resounding YES!
There’s a lot of preparation that goes into a new baby and your finances should definitely be included. Did you know the cost to raise a child in 2023 is estimated at more than $30K per year?! Talk about sticker shock, but if you start planning early in your pregnancy, your future self will thank you. Plus, you aren’t alone; we’ve got some helpful tips to get you financially prepared for the arrival of your newborn.
Create or Adjust Your Budget
Now that your family is growing, it’s time to create or adjust your budget to accommodate your bundle of joy. It’s helpful to record your current income and expenses, then add the costs both big and small that come with having a baby. In my experience, I found the two major expenses of having a baby come from the cost of delivering your child and childcare after the baby is born.
Depending on where you live, delivering your child can range from $10,000 to $20,000. While your health insurance should cover a huge chunk of the cost, you may still have to pay several thousand dollars out of pocket for maternity care. Do your research ahead of time and contact your insurance provider to get a more accurate cost to include in your budget.
If your household doesn’t intend on having a stay-at-home parent, start interviewing and saving for childcare ASAP! Childcare is the single largest monthly expense for new parents. Consider opening a separate savings account now and determine how much you can comfortably allocate to the account on a regular basis.
Another important factor to incorporate into your budget is parental leave after baby is born. You and your partner should contact your HR departments early to determine if they offer paid parental leave, how many weeks are covered, and what percentage of your salary you could potentially receive on leave. You may also want to ask if you’re required to use vacation and sick time first.
Finally, don’t forget to add the everyday necessities for your little one. I’ll let you in on a little secret I learned. Babies don’t need a lot or expensive things to be happy. A full belly, a clean bottom, somewhere to sleep, and lots of cuddles usually do the trick. Include necessities they’ll need like the cost of diapers, wipes, formula (if applicable), and baby clothes in your budget.
Cut Down Debt
Now, it’s time for some honesty. Look at the expenses you’ve recorded in your budget and evaluate where all your money is going and see if there are any areas where you can cut back on spending. Maybe it’s going out to eat less and cooking more at home or keeping your current vehicle longer than you initially anticipated. Wherever you’re realistically able to cut expenses will add up by the time baby arrives.
If you’re in the position to do so, paying down any existing debt before baby arrives will help save you money and could increase your credit score at the same time. However, don’t drain your savings or take on new debt just to do that.
Set It and Forget It
Speaking of your expenses, when baby arrives, chances are you’ll be just a little sleep deprived, so do your future self a favor and automate your recurring bills. In between diaper changes and late-night feedings, the last thing you’re going to be thinking about is whether or not you paid your car loan or credit card bill.
Ensure your bills are paid on time by setting them up for autopay with your financial institution. This way, you only have to set a reminder to check your bank account monthly (or more frequently as you wish) to ensure the lump sum is there to cover the payments.
Plan for the Unexpected
Now that you will have a little human who depends on you, consider re-examining your life insurance coverage or starting a new policy if you and your partner aren’t currently covered. I get it, this is the happiest time of your life, and the last thing you want to think about is the “D” word, but life insurance helps protect your family financially if the unexpected were to happen. As a general rule of thumb, base your life insurance amount on your yearly income and multiply that by ten.
While we’re on less joyous but very necessary topics, consider writing a will. No one wants to think about who will raise their children and manage their finances if they aren’t around, but choosing a guardian before the baby is born will allow you to focus all your time and energy on the baby when they arrive. You can use online paid services to write your will, or you can choose the traditional route of hiring a lawyer to draft your will for you. If you choose the lawyer route, expect to pay anywhere from $300 to $1,200.
Children are the Future
Now that we’ve gotten through all the doom and gloom, let’s talk about your baby’s future and the endless possibilities! What path will your little one follow when they grow up? Maybe their interests will land in medicine, or take off into outer space, or maybe their existence will be more in the virtual world, and they’ll become the newest social media influencer. Although there’s no way to know what career path your little one will take, one thing is certain; they’ll need a sound education and the funds to cover it to help get them where they want to go.
Once baby is born, open a savings account and allocate a portion of your paycheck to make periodic deposits to boost their savings. This way, by the time your little one is ready for higher education and all the wonderful things life has to offer, they’ll have a good head start for what awaits them in the real world.
Ready to set up baby’s account now? At GOLD, we offer youth accounts that will grow with your child and teach them the principles of saving and spending early on to set them up to be financially savvy adults.
From all of us at GOLD, congratulations, and welcome to parenthood!