How to Get a Handle on Your Finances When You are Expecting Your First Child
Expecting your first child is simultaneously a thrilling and nerve-wracking experience. There is so much to do before they arrive. You have to set up the nursery, purchase diapers and bottles, research cribs and strollers — it?s easy to get swept up in the excitement. However, the most important (and often most neglected) thing you need to prepare for is your financial plan.
Start Planning Before the Baby Arrives
Children are expensive. In fact, according to CNN, a child born in 2015 will cost over $233,000 by the time they turn 17 for a middle-class family. That is a significant amount of your budget that will be dedicated to child-rearing. And once you have a child, handling your finances is not something you can do on the go — not only for your child?s sake but for your own well-being.
Poor money management can be a massive strain on your mental and physical health. And while it’s important to make an effort to maintain optimal mental and physical wellness after you bring home baby, you can derail all of your efforts if you’re regularly stressed about finances.
That stress can cause migraines, insomnia, and heart problems, as well as lead to depression and anxiety. Not to mention the strain it can put on the relationship with your partner. This is why it is important to get your finances under control before your child arrives.
Make a New Budget
With a new baby comes new expenses, and the first two years of a child?s life can be the priciest. Wealth Management found that on average, new parents spent around $12,600 annually. This included monthly expenses such as diapers, formula, food, and clothes, as well as larger one-time purchases like cribs and strollers.
Parents who do not plan ahead start to run into money problems around the time their child turns 6 months old. Start saving your receipts and keeping track of your spending before your child is born. This will give you the opportunity to see where you can make cuts and start saving for these expenses immediately.
When putting together your budget, consider how much you?re spending on mortgage payments and property taxes. If it doesn?t match up to your new budget, consider selling your home and moving to a less expensive one that you can afford.
Start an Emergency Fund
Experts recommend having enough in savings to cover three to six months worth of expenses. If you are one of those financial savvy people with a comfortable nest egg already, that?s great! However, do not forget that with a new baby comes new expenses. Start padding your savings account now for these extra costs. You do not want to be left in a lurch if an emergency should arise. To help you figure out how much to add, check out Baby Center?s cost calculator.
Think About Insurance
Medical costs add up fast. Take the time to understand your health insurance and look for in-network doctors. This applies both to yourself during pregnancy and for finding a pediatrician for your kid. Be sure to add your kid to your health insurance plan within 30 days of birth or else you may risk the chance of enrolling them until open enrollment.
Now is also the time to invest in life and disability insurance if you don?t have it. You want to pick a plan that will help your partner and child maintain their quality of life in case something should happen to you. Many people opt for 30-year term life insurance simply because this period of time covers the years when you?re likely to keep it the most. However, each person?s needs are different, so it?s important to determine which life insurance policy will work best for you before settling on one.
Keep Planning for Retirement
It is easy to get swept up with your child, but do not forget about your own needs. The smartest financial planners are the ones who plan for the long run. Do not let your retirement planning go neglected. Even if one of you is planning on quitting work to stay home, you should vow to keep putting money into retirement.
Expect the Best, Plan for the Worst
As with anything, the unexpected can derail the best-laid plans. You or your partner could get laid off, your child could get sick, or something could happen to the house. Life loves to throw curveballs. But through careful planning and secure finances, you can make these unexpected moments that much easier.
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Sara Bailey