You can’t afford to live paycheck-to-paycheck when you have a baby on the way. You have diapers to pay for, college to save for, and emergencies to prepare for. It’s a big shift from your single days, but with the following financial planning tips, you’ll enter parenthood feeling ready for anything.
Create a post-baby budget
Between hospital bills, diapers, cribs, and carseats, your baby’s first year is expensive. Tighten your budget during pregnancy so you have the cash to pay for these one-time expenses.
You also need to find space in your budget for the ongoing expenses of raising a child, like health insurance, daycare, food, and clothing, as well as long-term expenses like saving for college. It’s tough to know exactly what your annual costs will be, but a baby costs calculator allows you to make an educated guess.
Upsize your emergency fund
Unexpected expenses are a guarantee when you have a little one at home. There’s the emergency room bill the first time your infant spikes a fever, the dental bill when your toddler falls and cracks a tooth, and the repair bill when your family vehicle breaks down out of warranty. Without an emergency fund to lean on, these costs add major stress to your family finances. But when you’ve built a savings account large enough for emergencies big and small, you can handle life’s mishaps without going into debt.
Get your insurance in order
Some emergencies are bigger than a savings account can handle. That’s where insurance comes in. Insurance protects your family against financial catastrophe when things take a turn for the worse. These are the three insurance policies that parents can’t afford to live without.
Health Insurance – You have health insurance for yourself, but now that your family has a new addition, you need to update your policy. You can add your child to your existing employer-sponsored or marketplace health insurance policy. You can also purchase a child-only policy or, if your income qualifies, enroll your child in the Children’s Health Insurance Program (CHIP).
Life Insurance –In addition to a will that names a guardian for minor children, parents-to-be need life insurance. Life insurance compensates for lost income and helps the surviving spouse cover funeral costs, medical bills, and other expenses. If both parents die, life insurance serves as an inheritance to provide for a child. If this is your first time buying life insurance, the options probably have your head spinning. A good place to start is becoming familiar with term life insurance, which lasts for a fixed length of time—e.g., 20 years—and the “death benefit” is paid out the same way as whole life insurance. You also pay a lower monthly premium for a term life plan, making it an affordable option. The length of coverage and its monthly cost are based on certain factors like your age, health, when you plan to retire, and when you think your children will become independent adults. You can get a better idea of cost by getting a quote.
Disability Insurance– Could your family stay financially afloat if income stops coming in? If a long- or short-term disability would spell disaster for your household, you need disability insurance. Disability insurance pays out a portion of your income if a disability leaves you unable to work. Some companies offer low-cost disability insurance through their employee benefits package, but if you don’t have access to disability insurance through work, buy a standalone policy to protect your family’s income.
Save for college
Saving for college is the final financial hurdle for parents. While paying college tuition in full is a luxury few families can afford, many parents aim to contribute as much as possible to their children’s education and reduce the debt their kids enter adulthood with.
Education Savings Accounts and 529 Plans are the best ways to save for college because your savings grow tax-free. Set an annual savings goal for your child’s higher education, but make sure you’re funding your own nest egg first.
Some things are easy to plan for — the cost of a year’s worth of diapers, the spike in your health insurance premiums. Other things you hope you never have to face — a stay in the NICU, the loss of a spouse. But no matter what the future holds, you want to be prepared. While these four steps won’t ready you for all the joys and challenges of parenthood, they’ll protect your finances so you can provide for your little one from birth to bachelor’s degree.
Image via Unsplash
Guest Post by Emily Graham