In an ideal world, all parents could create a financial plan for baby well before they get pregnant. Of course, things don’t always work out that way, but if you’re currently expecting, planning for the future now is highly recommended.
“Once you start putting numbers to the cost of having a baby it can be overwhelming and surprising to see what kind of financial commitment is required of parents,” says Clarissa R. Hobson, a certified financial planner based in Colorado Springs, Colorado.
Having a conversation with your partner about financially planning for baby as best you can, will help you think things through. Doing this now will definitely save you from lots of stress and heartache later. Here’s a list of important things to consider doing to help you get started.
Break out the spreadsheets and take a look at your finances. You can start by reviewing your budget and current expenses. “I recommend that expecting parents build in projections for diapers, food, childcare and medical costs into their budget,” recommends Hobson. “This helps identify what their costs will look like in the future and how it will impact their finances.”
Researching your childcare options and costs is a key component of financially planning for baby. “For many families, the cost of childcare can be equivalent to a mortgage payment,” Hobson says. Consider whether you need full-time or part-time care and where that care will be provided. All of this can be done months before baby’s arrival. Got a plan? Start depositing your monthly childcare costs into a savings account to get a feel for how this upcoming expense will impact your cash flow.
Think the Unthinkable
Life insurance is definitely unpleasant to think about when there’s a new baby on the way, but your little one will be financially dependent on you for many, many years. Planning for the unexpected by obtaining a life insurance policy to cover the mortgage or additional childcare expenses is a smart thing to do. Shop around and prepare for your required medical screening to get the best rates.
Establish an Emergency Fund
The general rule of thumb for most emergency savings funds is to put away six months of living expenses. But when you have a baby, you also need to factor in additional costs such as unexpected medical costs and extra childcare expenses. Add this extra cash to your emergency fund now so that you won’t be stressed out when those additional costs come up later.
Plan for College
Yes, it’s years and years away, but college costs are astronomical. With a college savings 529 plan, you can start saving for future studies as soon as baby is born and has her own social security number. The sooner you start to save, the more time you have for your money to grow. Your grown-up baby will be super grateful when she isn’t saddled with student loan debt thanks to your smart planning.