By: Ted James
With a new baby comes infinite joy and a great deal of added expenses and responsibilities, too. Of course, the bulk of these boils down to your finances, which is why financial planning is not only prudent but a real necessity at this point in your life.
For new parents embarking on this journey, it can be overwhelming. But there is a secret to caring for your family’s finances, and it lies in thinking ahead and anticipating financial needs long before they occur. Here are the elements that are most deserving of your focus.
It’s common knowledge that the biggest expenses of having a baby are often medical. It’s a good idea, therefore, to start by looking at your health insurance coverage. Generally, your baby is automatically covered in the first 30 days of her life. After this, you will need to officially add your child to your plan, typically within 60 days of her birth. Simply doing so will drastically reduce your out-of-pocket expenses, so it’s well worth it.
A new addition to the family also means there’s another person relying on you, so you will want to make sure that your family is taken care of financially should something unexpected happen. It’s good practice, therefore, to get a life insurance policy.
The process is pretty straightforward. You can start by working with an agent to find the best policy for your needs and budget. After which, you will be required to complete paperwork and go through a medical exam, which includes a relatively painless blood test that is then used to assess your overall health. Insurance companies require this procedure as a way to determine if you have pre-existing health conditions like high blood pressure, cholesterol, or glucose levels, as well as any drug, nicotine, or tobacco use, to name a few. The bright side is favorable results could bring down your premiums.
You might be surprised to know that a new baby comes with several tax perks. At the most fundamental level, this includes the federal Child Tax Credit (CTC) and child care credit. You may even be eligible for more, depending on your specific circumstances and location.
The cost of raising a child can be hefty, yes, so it’s really in your best interest to do your due diligence and learn about your tax benefits. You could be looking at a lesser tax bill or better yet, a bigger refund.
The advantages of an emergency fund are well-known, but no doubt it’s particularly important for families. You just can’t plan enough for a rainy day, so it’s wise to have this comfortable cushion to fall back on in case things go awry.
As a rule of thumb, your emergency fund should cover three to 12 months’ worth of living expenses in a pinch. Of course, this is easier said than done because, in reality, it can be difficult to put away good chunks of your income. But by setting priorities and cutting down expenses, it’s still very much doable.
Not to be confused with the emergency fund is your savings for the future. While it may seem too early to think about college tuition, it’s really not. With the average cost of tuition for public colleges currently at a whopping $26,590, it’s safe to say that you just can’t save up for it early enough.
Consider putting money toward a tax-advantaged 529 savings plan. These are plans dedicated to education-related expenses and often come with tax incentives that vary by state, which could be the headstart you need for your child’s education.
No doubt parenthood is scary in all aspects, especially financially. Thankfully, with solid financial planning and an eye to the future, you can alleviate your worries so you can focus more on the things that matter most.
Ted James is a professional financial counselor and coach with an MBA in Finance. He’s a husband, father, dog owner, and rock climber living in the Pacific Northwest.