First comes loves, then comes marriage, then comes a baby in a —
Oh, crap! There’s a baby on the way! How are your finances looking?
Don’t fret just yet. You’re not alone! There are about 250 babies born every minute.
That makes more than 130 million new babies per year. The world’s population is increasing by the, well, minute. By 2100, the world will be home to a projected 11 billion people.
And if all those parents can do it, so can you!
You may have to take a pit stop at a Finance 101 class. Or, you could start prepping right now by using some of the tips in this article!
So, put down What to Expect When You’re Expecting. And check out this article on “What Your Wallet Can Expect When You’re Expecting!”
Finance 101: The New Parents’ Guide
The mean income per household in 2017 was under $50,000. This may support your current lifestyle. But it’s time to consider the expected (and unexpected) finances that come with a baby.
The estimated cost of raising a child from birth until age 17 is $233,610. That’s about $13,741 a year. And let’s be honest — you’ll probably have them in the house until at least 18!
If you’re at a loss when it comes to your finances, you may need to hire a financial planner. In the meantime, keep reading.
Get to Know Your Monthly Budget
It’s time to sit down and get to know your bank account a little more. Review your monthly transactions. What’s coming in and what’s going out?
If there are two parents in the equation, do this exercise with your partner. How much do you two spend a month on:
- Food
- Transportation
- Going out
- Housing
- Clothing
- Subscriptions
- Luxuries
- Insurance
- Bills
Don’t make rough estimates. Check out your monthly statements, which are usually available online. Use specific numbers to figure out where you can tighten up and where you can afford to spend a little more.
Dust off Your Finances
Now dust off your finances. Trim the dead ends. Get rid of unnecessary costs.
Do any of your monthly subscriptions overlap? You have Netflix, Hulu, HBO, and Amazon Prime. Can you trim the fat?
Consider family plans for anything from your phone bill to your music subscriptions. Many companies offer discounts when there’s more than one person involved.
Health and Life Insurance
Now it’s time to consider two important types of insurances. Health insurance for the new babe, and life insurance for the parents.
Initial hospital visit aside, your baby will have many check-ups in the first months. Most providers need a notice within 1-2 months of the baby’s birth. The sooner you alert your provider, the better.
Or, you may wish to switch providers. New parents are able to apply during non-enrollment periods.
And if applicable, see if you can get health insurance through your employer.
For the parents, think about getting life insurance. This ensures that if anything bad happens, the remaining family members will have some financial security. Although it’s hard to think about, it’s important for new parents to consider.
Review Your Tax Breaks
It’s time to update your tax forms! As a new parent, you qualify for certain tax breaks:
- CTC, or Child Tax Credit
- EITC, or Earned Income Tax Credit
- Child and Dependent Care Credit
Married parents with an income below $110,000 are eligible for up to a $2,000 annual tax break through the CTC.
The EITC is good for lower-income families. You may be eligible to receive an almost $3,500 tax credit if your income is below $20,950.
The Child and Dependent Care Credit is a credit on a sliding scale with your income. For incomes of $15,000 or less, a tax credit of 35% of childcare costs may get rewarded to you. As your income rises, your tax credit decreases.
The largest allowance is a $6,000 credit for families with two or more children.
Be Prepared for Emergencies
You know how you trimmed the fat of your monthly budget? Why not put some of that money into an emergency savings account?
As soon as you can, start putting aside a percentage of your income for emergencies. This is aside from child care costs. If you can make an emergency fund part of your annual budget, you won’t regret it during the time of an emergency.
Save for College AND Retirement
Much like insurance, you’ll need to consider more than your baby. Consider yourself, too. Preparing for your financial future will benefit them, as well.
And as with everything, the sooner the better.
There are a couple ways to go about saving for your child’s college education:
- 529 plans
- Prepaid plans
A 529 is a tax-free way to save for educational purposes. This college savings plan is an account where the earnings won’t get taxed.
Some prepaid plans, such as Florida Prepaid, allow you to start paying now on a month-to-month basis. With these plans, you pay the initial tuition price. If tuition rises, you’re locked in at the original cost.
And while you’re at it, save for your retirement! Although both of these ideas sound far in the future, it’s best not to procrastinate.
Does your employer offer 401k matching plans? If not, who does? Maybe a career switch is another life change to consider.
Make Your Will
And the same idea applies here as with life insurance and retirement. How can you best prepare for you (and your family’s) finances in the future? A will ensures your assets and finances are purposefully and correctly divvied out.
Baby on Board!
Thanks for stopping in on our Finance 101 class. We hope you learned a little (or a lot) more about what having a baby entails. You’ve got about 9 months to make a proper strategy!
How else can you prepare for the new addition to your family? Let’s start with their bedroom!
Here are our favorite tips for decorating a newborn’s room. Good luck and congratulations!