12 Financial Tips to Help You Prepare for a Baby

From a safe place to sleep to an endless array of bottles and baby toys, it’s no exaggeration to say that expecting parents have a lot on their mind and even more on their to-do lists. If you can relate, then you may also be a little overwhelmed by the upcoming financial responsibilities of parenthood. If you are ready to take steps towards a healthier financial future, keep reading for 12 financial tips to prepare for a new baby.

Before the Baby Arrives

It's never too early or too late to start planning for your new arrival. By laying a strong foundation before bringing home your bundle of joy, you will be better prepared for your future financial needs.

1. Take Your Financial Pulse

Before preparing for your baby, you must take a closer look at your own financial situation. If you have not already done so, write down and start to analyze your income, expenses, debt, and other financial obligations. Maintaining a personal budget will shape how you will plan to pay for the new baby expenses and the best ways to begin to save. Your personal financial check should focus on combing through your assets and liabilities.

Your Assets

Assets include your cash on hand and everything you own that is liquid or can be liquidated. Your assets include:

• Cash
• Checking Accounts
• Savings (savings accounts, money market, health savings account, etc.)
• Money Owed to You
• Investments (stocks, bonds, 401(k), etc.)
• Emergency Fund (6 months or more of expenses)
• Property (home, cars, real estate, etc.)

Your Liabilities

Liabilities are the financial responsibilities that you owe to others and for which you make regular payments. These obligations may include:

1. Expenses & Bills (rent, utilities, insurance, etc.)
2. Loans (Mortgage, cars, student debt, etc.)
3. Other Financial Obligations (taxes, alimony, child support, etc.)

2. Review Your Parental Leave Options

While you are writing down your assets and liabilities, start to think through your parental leave options. Today, many companies offer some maternity and/or paternity leave, but it is not always paid at an employee’s normal rate. You will need to take these factors into account when planning for your expenses and additional savings. For many new parents, their ability to earn money could be affected for six months to a year, sometimes even longer. For this reason, many expecting parents start to focus on increasing their savings as the due date approaches.

3. Become an Insurance Expert

One way to compensate for lost earning potential is by taking advantage of short term disability through your insurance provider. These policies could pay you 50-100% of any lost wages for up to 8 weeks following pregnancy. Check with your insurance provider to see if you qualify.

Your health insurance coverage will also be a large part of your financial reality surrounding the birth of a new child. To prepare your family, you are going to need to become a scholar of your insurance policy. Before your baby arrives, read the fine print, check your deductibles, and study your out-of-pocket limits for both individual and family coverage. As you educate yourself on the ins and outs of your insurance policy, you will have a better idea of potential costs and can start to save and prepare ahead of time. Essential insurance questions to ask yourself include:

• Do I have a co-pay?
• What is my deductible?
• What will I be responsible for paying?
• What types of visits will be covered?
• What labor and delivery expenses will be covered?
• What if I have a C-section?
• Are well-baby checkups covered?

4. Create Your Baby Budget

When you have a better view of your financial health and the potential costs of having a baby, you can then start to form a budget. Your baby budget should help provide a solid financial plan that includes adequate savings and cash on hand to pay for monthly bills and other needed expenses. Whenever possible, save more than you think you may need, because it's difficult to plan for everything and unexpected expenses will inevitably happen along the way.

According to the U.S. Department of Agriculture (USDA), a child will end up costing you an additional $12,000-$14,000 annually, so budget accordingly. These additional yearly costs do not include the following one-time expenses, common for first-time parents:

• Crib, Mattress, & Bedding: $500
• Changing Table: $250
• Rocker: $350
• Dresser: $300
• Other Decor Items: $100
• Baby Clothes: $360
• Diapers & Wipes: $300
• Maternity & Nursing clothes: $500
• High Chair: $200
• Toys: $150
• Baby Food & Formula: $300
• Stroller, Car Seat, & Carrier: $500
• Miscellaneous: $500
• TOTAL = $4,310

Days 1-30

Taking a complete survey of your finances and sticking to a budget is a great start to preparing, but after the baby arrives, there will still be more to do. Below are some of the financial obligations you will need to take care of during the first month of your child's life.

5. Request Your Child's Birth Certificate & Social Security Card

Starting inside the hospital, your first job as a new parent will involve some paperwork. Much of the financial and legal obligations you will be required to handle in the coming days require a birth certificate and Social Security card to complete. Your hospital should provide you with the appropriate forms to request both.

6. Add Your Child to Your Health Insurance Policy

You will use your child's birth certificate and Social Security card to add them to your insurance policy. Your child will not be added automatically. Most insurance providers also have a strict 30-day grace period to add a new baby — so act quickly to avoid any unexpected bills or penalties.

7. Ask About Life Insurance

Purchasing a life insurance policy for a newborn does not make sense for everyone, but you may want to explore your options early. There are a variety of life insurance policies available. Some forms of life insurance can act as a savings account for your child, while others charge low monthly premiums to cover unexpected funeral costs. Depending on your financial goals, consider talking with your financial planner to find a life insurance policy that will meet the needs of your family.

8. Make Plans for Childcare

According to some studies, nearly 60 percent of children under age six have both parents in the workforce. If you are one of the millions of parents returning to work, then it’s time to make plans for your childcare. Be sure to work this expense into your financial plan and your budget. Costs will vary depending on your child's age and the childcare type, but the average price for childcare in the U.S. is $8,000-$12,000 annually.

Year 1 and Beyond

For many families, the first year of a new child’s life is filled with paying off hospital bills and replenishing their savings. However, once things start to return to normal, you may want to set your financial sights on the long-term financial goals for your child.

9. Make a Will or Adjust the One You Have

Your first step towards the long-term financial planning for your child should involve either creating a will or adjusting the one you currently have. In addition to assigning legal guardianship for your child in the event of your death, your will should also outline what happens to your estate. Many new parents want to ensure their assets are passed to their children, but leaving your house and money to a newborn won't always make sense either. In this case, you will need to assign a "guardian of the estate."

This is often the same individual you designate as a guardian for your child, but they can also be different. The guardian of your estate would ultimately be responsible for watching over any assets you leave behind until your child becomes of age. Work closely with a trusted legal professional to ensure your wishes will be legally binding. Merely writing it down will not be sufficient in the eyes of the law to ensure the passing of your estate to your child.

10. Learn About College Savings Accounts

As the cost of education in America has skyrocketed over the years, many new parents are looking to start saving early. Parents wanting to save for their child's college have several options, including 529s and Education Savings Accounts (ESAs) that offer some tax incentives.

529 Savings Accounts

Anyone over the age of 18 with a Social Security card is eligible to contribute to a 529 savings account. Individual states offer 529 accounts and appoint a fund manager to invest the funds that you contribute, along with other 529 account holders. Any returns you make are 100% tax-free on a federal level, as long as they are used to pay for qualifying education expenses. Each state is different, but additional fees and state taxes may still apply. Parents who start a 529 account for their child will retain control of the account even after their child reaches the age of 18.

Education Savings Account (ESA)

An ESA account, also known as a Coverdell Education Savings Account, is another type of investment account that allows for tax-free returns for qualified education expenses. ESAs have yearly contribution limits and have income restrictions for participants. Unlike 529s, an ESA gives account holders control over their investments. Money from an ESA can be used for elementary and secondary education expenses in addition to college. All funds in an ESA must be used by a beneficiary's 30th birthday, or they will be rolled to another qualifying family member.

11. Open a Custodial Account For Your Child

In addition to saving for your child's education, many parents also want to help teach their children financial responsibility. For many parents, this education begins by opening a custodial account for their child. There are several types of custodial accounts available. Some are simple savings accounts, and others are set up for investing or real estate holding. For many parents, a custodial savings account is a simple entry point to teach your child about the value of saving.

Custodial accounts you set up for any child will legally become theirs when they reach the age of majority — 18 in most states. Also, you should be aware that there may be tax implications for accounts over $950. If you give more than $15,000 individually or $30,000 for a couple in a year as of 2019, you will also be subject to gift taxes.

Be sure to work with your financial advisor to ensure you are choosing the right type of custodial account based on your financial goals for your child. Different banks, credit unions, and other financial institutions may have different names and incentives for their custodial accounts. For example, at First Service Credit Union, we offer unique Youth Savings Accounts that give parents full control of the account while offering children incentives for good grades. Also, any of our account types can be used as a UTMA Custodial Account – giving parents control until their child reaches the age of 21.

12. Don't Forget About Your Own Retirement

When it comes to financial education and your children, sometimes it is best to lead by example. While you work hard to set your child on a secure financial footing, don't forget about your personal financial goals. By sticking with your retirement plan, you are an example for your child and will ensure they aren't caring for you in your old age

First Service Can Help You Prepare for Parenthood

No matter your financial goals, First Service can help you achieve them. Our highly-trained, local staff is here to help educate families on their finances and can help walk you through setting up any type of account. Regardless of where you might find yourself on your financial journey, our financial experts are here for you.