Adding a baby to your family is overwhelming in many ways. You’re excited; you’re terrified; you’re anxious; you’re happy; you’re sad; you’re stressed. But the good news is you can tackle some of these feelings by planning ahead of time. One of the big stressors of bringing a child into your family is the financial aspect of it. This is why I have created a financial checklist for new parents. While you won’t be able to check most of these items off until after the baby arrives, this checklist will at least have you mentally prepared about what it is you need to do and approximately how your finances will change once your little one makes his/her arrival.
Before delving into the checklist, I wanted to share some interesting data points with you. According to a survey conducted by LendEDU of 1,000 parents, the first year of caring for a child costs an average of $13,186. This money was spent on things like healthcare, food, toys, diapers, childcare and other miscellaneous expenses. This is why it is good to to have a plan ahead of time and the financial checklist I have put together below will help prepare you for the costs of bringing a new child into your family.
1. Add Your Child to Your Health Insurance Plan
Generally speaking, you have up to 30 days from birth to add your child to your health insurance plan. As long as your child is added within 30 days, all costs incurred in that time frame should be covered retroactively. For those of you thinking, what happens if my child is born outside of the open enrollment period? Don’t worry. Having a child is considered a qualifying life event, so you are able to make changes to your benefits after the baby is born.
2. Choose a Good Pediatrician
While choosing a pediatrician does not necessarily sound like it has a financial impact, it does. Do your research and find a good pediatrician that is in-network, to help you save on medical costs. Babies will have many visits to the pediatrician, so making sure your doctor is in-network will save you a lot of money in the long run because those visits will add up quickly if you are going to a pediatrician that is out of network.
3. Build an Emergency Fund
While in theory you should have an emergency fund whether you have a baby or not, it is even more important to have one when you’ve added another member to your family. An emergency fund is a savings account that is used as a safety net to cover the costs of unexpected expenses. Ideally, I would recommend building that emergency fund prior to the baby’s arrival because your finances will change significantly once you have a baby which will make it more difficult to cover unexpected expenses.
4. Contribute to Savings for College Tuition
Obviously saving for your child’s college education is optional, but for those who want to try to cover the costs of college, I suggest contributing to some sort of college savings account as early as possible. Nothing beats compounding interest, so the earlier you start saving, the quicker that money will grow. The most popular choice for saving for your child’s college education is by using a 529 plan.
5. Create a Will/Add Your Child to Your Will
Many people don’t think about a will when they’re young because the idea of anything happening to them seems highly unlikely. While that is hopefully the case, bringing a child into the mix makes you think again. Although it may be highly unlikely that anything happens to you, IF it does, you want to make sure your child is well taken care of. A will creates a plan for the distribution of your assets, as well as appoints a legal guardian for your child. Adding your child to your will ensures that in the case of an untimely death, he/she will be taken care of.
6. Update Your Beneficiaries
Most likely your current beneficiary for your money or assets is your spouse, if you have one. Again, in the case of an untimely death, you expect that your spouse will take care of your child/children, so leaving him/her as the beneficiary is fine; however, in the case of an untimely death for both you AND your spouse, you will want your child named as the beneficiary. I would recommend then making your spouse the primary beneficiary and your child the secondary beneficiary of all your assets.
7. Adjust Your Tax Forms
You may be interested in claiming your new dependent on your W-4, so that you have less tax taken out from your paychecks. If that is the case, you can make that adjustment immediately with your payroll contact or human resources department at work. Additionally, though, you should research all the new deductions and credits you may be eligible for when you file your taxes for the year. Some examples are the $2,000 child tax credit, child care credit, adoption credit and more.
8. Plan for Maternity/Paternity Leave
Prior to your baby’s arrival, be sure to check out your job’s maternity or paternity leave policy. The Family and Medical Leave Act (FMLA) entitles eligible employees to up to 12 weeks of unpaid, job-protected time off. Giving birth to a child qualifies you for FMLA leave. However, many companies offer some sort of paid time off in addition to or in conjunction with FMLA. For example, a job may offer paid time for 6 of the 12 weeks of FMLA. Research your policies ahead of time and plan for any unpaid gaps before you return to work. Paternity leave is also becoming increasingly popular, but is not required to be offered by companies. Check what your job offers to make the best plan for your family.
9. Get a Term Life Insurance Policy
Many of us forego additional life insurance because many companies offer life insurance to their employees. The problem is that these policies are only applicable while you are employed at that company. A good thing to consider is a term life insurance policy that will cover you for a certain amount of time, such as through whatever age you believe you will need to cover expenses for your child (such as through college). You may also choose a longer period of time.
10. Draft a Baby Budget
Although it is impossible to know the exact expenses you will incur to take care of your baby, you can definitely estimate it. I highly recommend creating a “baby budget” to help you get an idea of how your finances will change after the baby. This baby budget should include things like adjusting your pay to reflect withholding and/or health insurance changes, diapers, wipes, formula (if you choose to formula feed), child care, adjustments to income if you or your spouse will not be returning to work and life insurance premiums.