7 Ways to Financially Plan for Baby
How to Plan for a Baby Financially
Whether you’ve decided to start trying to have a baby or if you just stepped into the big shoes of parenthood; you are about to have a whirlwind of major decisions to make. But aside from choosing the sweetest name or the perfect nursery paint color scheme, one of the most impactful series of choices you will make all revolve around finances. Here are seven things to consider when you begin financial planning for a newborn baby.
Lock down life insurance.
It may be unpleasant to think about, but what would happen if you were gone? Would your family be okay financially? Locking down life insurance now can help financially protect your growing family in the event of tragedy.
Planning your baby budget.
Budgeting is an essential part of financial planning for having a baby. Before kids, it might have been easy to grab that latte every morning and order takeout a few times a week. But now that you’re on the path to parenthood, those little daily expenses add up a lot quicker. If you’ve never created a budget before, you can start with this easy-to-follow budgeting plan created by the Federal Trade Commission. It takes your monthly income and separates it out into your expenses and savings and allows you to see a glance exactly how and where your money goes.
Re-examine your health insurance.
Did you know that there are specific life events that allow you to adjust your health insurance policy even if you are outside the window of enrollment? Having a baby is one of them and an important step in your financial planning. And in addition to simply signing up for health insurance, you could look into starting a Health Savings Account (HSA) which allows you to sock away up to $7,100 pre-tax that you can then use for specific medical expenses. During pregnancy that can come in handy…especially if you’re in the market for a breast pump, birth classes, and other pregnancy- and birth-related costs.
Start that college nest egg for your baby.
It might seem like college is forever away, but before you blink, your kids will be walking and talking…and then suddenly asking to borrow the keys to the car. Start financial planning for your child’s higher education now, even if it’s only a few bucks a month. A 529 college plan is a simple way to get a nest egg started to help your child be able to pay for tuition in the future. The best part? The closer you get to the big day when you send your child off into the world, you’ll feel like you did everything you could to help them be prepared. Here are more tips about how to save for college.
Look into family tax breaks.
Raising kids is expensive. So, when the tax man cometh, it’s worth looking into various family tax breaks that can help your family save money. A couple of options that may help if they apply to your family include…
- Earned Income (EIC), which can amount to a tax refund and is based on your taxable income.
- Adoption credit, which can amount to a refund for expenses you paid during the adoption process.
- American Opportunity Tax Credit (AOTC) can help if you spent your hard-earned money on tuition or other education costs.
Start a savings account for Baby.
One of the easiest things you can do right away to financially plan for Baby is to start a savings account. After creating a monthly budget, figure out how much money you can save each month. A prudent goal is to determine how much your monthly cost is that would cover all your bills plus food and other expenses and then multiply that by three or six. Creating a nest egg to replace your income in case you lose your job can give you and your family a soft landing during an otherwise turbulent time. And, if you don’t end up needing it for an emergency, you can use it for other big-ticket expenses (like summer camp).
Start a retirement account (or boost your contribution).
And just like your baby’s future college days might seem so far away right now, so too might your own retirement. But don’t wait. The sooner you start saving for retirement, the better off you and your family will be. For options to check out, consider this complete list at the IRS that outlines many ways that you can get started saving for retirement. A few popular options include:
- IRA
- Roth IRA
- 401(k) plans
- Payroll Deduction IRAs
If you have trouble finding a plan that best suits you, the IRS has this great tool to help guide you to types of retirement plans that best meet your needs. And if you’re already socking away money each month, consider whether you might be able to increase your contribution!
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