Congrats! Having a baby is exciting. What financial planning essentials should make it to the top of your list?
Quick takeaways:
Each year in the United States, more than 3 million people welcome a child through birth or adoption.
Take the costs for health care during pregnancy and a hospital stay for childbirth: That averages almost $19,000.
It's a lot to think about—but luckily, you don’t have to figure out all your financial plans for a baby all at once. There are some thoughtful steps you can take now, and through the years, to take care of money to-dos before baby arrives and as they grow up.
You may have some new, one-time expenses, such as a stroller and car seat, that are expected when you have a child. You may also have bigger budget adjustments to make for ongoing outlays—think childcare to name one. Whatever the case, as you’re financially planning for a baby, take time to realistically revamp your budget. Consider:
You can’t know everything, but do your best to sketch out what you do know. Then, continuously evolve your budget both in real time and from year to year as those expenses change.
When you have a baby, there may be new, unexpected expenses that will happen that you haven’t included in a budget—for example, an emergency room visit. Starting and building an emergency fund can help.
It’s easy to get overwhelmed by recommendations for emergency funds—three to six months of expenses, or more if you’re self-employed. The total you choose is what works for you, but it can feel unreachable right now.
Instead, focus on achievable progress and habits. If you haven’t put anything away in emergency savings, that’s OK; now’s the time to start, even with what’s doable—say, $1,000 to give yourself a cushion. Then, set aside as much as you can for as long as you can to help reach your goal. To help quickly build up those cash reserves, consider putting aside a portion of a raise, even for a short time, or some of a tax refund.
Both traditional benefits and voluntary benefits are important to help you plan for the financial impact of having a child. And, because having a child counts as a qualifying event, you may be able to make changes to some benefits outside of the typical enrollment period.
When it comes to traditional benefits, you’ll have to decide on health coverage options for your child. You may also want to consider adding on benefits like a dependent-care flexible spending account to pay for childcare or a health savings account for health-related expenses, if available. If disability insurance and life insurance are offered through your employer, you may want to see if you’re able to increase the amount of coverage you have. Disability insurance provides a portion of your income, either short- or long-term, should you be unable to work, and life insurance helps provide your loved ones with financial resources should you die.
When it comes to voluntary benefits, there are lots of interesting and helpful options to consider. Hospital indemnity insurance, for example, may help with any hospital stay costs. Your employer may even offer learning opportunities through a benefits program to help you prepare for what it takes to adjust to newborn care. Your human resources or benefits contact can help you learn about the breadth and depth of what benefits may make the most sense for you.
People often begin thinking about a will during a big life event, and having a baby is a key milestone. A will offers you a way to cement your financial plans and help provide for your child, particularly when it comes to naming a guardian. Here’s what you need to create a will.
As part of their financial planning for a baby, some parents choose to put money aside in a 529 plan, or education savings account. While it’s impossible to predict what a child might choose to do after high school, 529 savings can offer more flexibility than you might realize. For example, savings in a 529 can be used for trade school and community college, as well as at a university or college. And if your child doesn’t need all the 529 funds, they can be rolled into a Roth individual retirement account.
As you make your financial plans for your baby, take time to update both primary and secondary beneficiaries. Here’s how to choose yours.
Your instinct may be to stop contributing to your retirement savings, especially in those early years with lots of new expenses that come with a child. But the earlier you save, the more time those savings have to potentially grow. Even if you have to adjust in the short-term, do what you can to keep saving enough to get your employer match, if available.
How you plan for taxes will likely change after having a baby, and your tax advisor can help you review any implications or changes you may want to make. And a financial professional can review any new goals you have as your family continues to change.
Not sure the right disability insurance coverage you need to help protect your family? A financial professional can help, and you can get a start on what you may need, and its potential cost, with this income protection calculator.
