Congratulations! You have a little one on the way and are excited to meet your new bundle of joy. As your due date draws near, your to-do list is likely growing with doctor appointments, nursery prepping, stroller shopping, and much more. With so much to balance, it’s easy to get overwhelmed and overlook a key area – your finances.
The expenses that come with a new baby can be staggering. The USDA estimates that most parents will spend an average of $7,000 to $10,000 during pregnancy. By the time your little one is all grown up and accepting their high school diploma, most middle-income parents will have spent $165,000 raising them.
To avoid added stress months and even years down the road, it’s important to begin your financial preparations as early as possible. Here are four ways to get started.
Upgrade Your Health Plan
If you’re a healthy young adult, you’ve likely been able to make do with a bare-bones insurance plan. Healthcare for children adds up quickly, and you want to feel confident that your coverage can handle the care they need. Consult with your insurance provider to make sure your chosen plan covers everything you might expect. Then, consider adding on a bit more coverage for the unexpected, just to be safe.
Special savings accounts are available to help you stay one step ahead of medical expenses. Depending on your health insurance plan, you may be eligible for a Health Savings Account (HSA) or Flexible Spending Account (FSA). Both accounts utilize pre-tax dollars that can be used for qualifying out-of-pocket medical expenses that wouldn’t otherwise be covered by your insurance. While FSA funds expire at the end of each calendar year, HSA funds can be rolled over year-to-year and remain yours even if you change jobs. Each account’s eligibility requirements, yearly contribution limits, and other details differ, so it is best to speak with your employer to find out what’s available for you.
Secure Disability and Life Insurance
Once your baby arrives, any financial or health catastrophes of your own will affect their life as well. Ensure an ill-timed accident or layoff doesn’t disrupt your plans by signing up for disability and life insurance. Your employer likely provides options to choose from, but don’t be afraid to reach out to a financial advisor for a consultation.
When looking at life insurance, consider if a whole life policy makes sense for your growing family. Whole life insurance can last a child’s lifetime and provide financial security and benefits throughout their life – protecting them and their future family. Sometimes a grandparent will purchase whole life insurance for a grandchild as a special gift that can’t be outgrown.
Anticipate the Tax Impact
Fortunately, most parents will enjoy a net tax savings once a little one joins the family. Still, it’s important to understand exactly how a new baby will impact your tax profile. Most middle-income families will enjoy around $1,500 in tax savings and exemptions, with another $500 or so in credits for daycare or childcare.
If your child’s future plans may include college, starting a savings plan early can avoid their reliance on student loans and venturing into adulthood weighted down by debt. 529 Plans are higher education savings programs that offer tax-advantaged investments for a designated beneficiary. Wisconsin has two plans – Edvest and Tomorrow’s Scholar. Contact a trusted financial advisor to learn more about these options.
Renovate Your Budget
It’s important to be honest with yourself about how raising a child might impact your spending habits and earning potential. Sit down with your partner and take a deep dive into the household budget, reviewing line-by-line to figure out what needs to be changed, and how. It’s easy to look at your budget using a personal financial manager (PFM).
If one parent plans to become the primary caregiver, factor in the loss of income and leave plenty of breathing room for maternity or paternity leaves. It is helpful to underestimate your post-birth income and overestimate post-birth expenses to ensure you’re prepared.
Becoming a parent is a big step that affects all areas of your life. Planning ahead for upcoming (and often unpredictable) expenses can help give you peace of mind that your growing family is financially secure.
Wondering where to turn next? Whether it’s budgeting for tomorrow or investing in your family’s more distant future, Fortifi Bank is here for you. Visit your local financial center or contact us today to get started.