If there is one guarantee after having a new baby, it is that your finances will change, and your spending will increase. People often joke that the biggest portion of your income will be going to diapers — about $1,000 a year, in fact. While it can be easy to focus on the immediate and tangible expenses of new parenthood, long-term financial planning should not fall to the wayside.
As you reassess your financial needs, you will need to think about health insurance, childcare, educational expenses, and other unexpected costs that come with having a baby. Here are some of the key considerations to make:
Update Your Important Documents
With a newborn, you will need to update several documents to ensure everything is in order.
- First, claim your child as a dependent for tax purposes by filing a new W-4 form with your employer within ten days.
- Ask your employer to add the baby to your health insurance plan within 30 days of the newborn’s birth.
- Check whether you qualify for child-related exemptions or are eligible for a flexible spending account. With a dependent care FSA, you can save up to $5,000 before tax to pay for childcare expenses, such as a caregiver’s salary and daycare tuition.
Create a Financial Plan
The future is uncertain — not even our greatest minds can predict what is going to happen tomorrow. When your new baby arrives, you need to have a financial plan in place. This could be a good time to start healthy money habits like budgeting and tracking your spending. Be aware of new expenses and how they are changing your financial needs. You can even schedule money dates with your partner to ensure on the same page and keep your finances under control.
Update Your Life Insurance
These days, life insurance policies have all sorts of innovative features that make them essential financial products. If you already had a life insurance policy, now is the time to increase the benefit amount to cover your newborn. After all, the primary reason for life insurance has always been to protect your family in the face of the unthinkable.
If you did not have life insurance before, now is the time to get coverage. 42% of families would face serious financial hardship with the loss of a wage earner in only six months. With life insurance, you guarantee that your child has a set amount of money they will receive — known as the death benefit — should something happen to you or your spouse.
The payout is income tax-free and distributed in a lump sum, making it crucial for those you leave behind. The money can be used to cover current and future expenses such as bills, funeral costs, childcare, mortgage or rent, and education. Connect with a life insurance agent today to find the best coverage for your new family.
Plan for College Tuition
When you have a baby, their education becomes a top priority before you know it. Financing a college education can be a source of financial anxiety, but you can grant yourself some peace of mind by establishing a college fund today.
How much do you need to save? Use the 2K Rule to make this calculation easy: at your child’s birthday each year, multiply their age by $2,000. That will give you the number that should be in your child’s college fund to keep you on track. If you want more information on the best place to put your child’s education fund, check out our blog post on college savings.
Meet With a Financial Expert
If you have recently welcomed a new baby into your family, congratulations! You are about to embark on one of life’s most rewarding journeys. Unfortunately, it can also be an expensive one. You now need to consider items like diapers, childcare, health insurance and all kinds of baby gear that pump up your expenses. Reassessing your finances after having a baby will help you determine the changes that you need to make to remain in control. Consult with a financial expert today to ensure your family has financial security.