Planning for the birth or adoption of a child is exciting and being proactive about your financial stability can be paramount when growing your family. No matter your current financial status, you can find ways to prepare and plan to get ahead financially.
Let’s look at 3 tips to help you prepare financially.
1. Pay down high-interest debt
If you have debt, you're not alone. It's common for lots of people. It's a good idea to make a plan to pay down your high-interest debt as much as possible before growing your family.
You could also narrow down what method you want to take to tackle your debt. For example, strategies for deciding how to apply extra payments: The avalanche method begins with paying the highest interest rate first. The snowball method starts with paying the lowest or smallest balance first.
With the avalanche method, once you pay your balance with highest interest rate, you move to the next, which may mean saving more money, in comparison to the snowball. With the snowball method, for example, you could pay off your smallest balance first (by paying the minimum balance or more) then move to the next.
Equally important, once you've reduced your debt or are out of debt, it's a good idea to track your spending and be cautious of your purchases. You may realize that you need to adjust your budget or cut back on spending. Every situation is different and there are no hard rules or set laws when it comes to saving and paying down your debt. Managing your money doesn't have to be complicated. Fidelity’s Plan Your Pay (PYP) guideline offers a simple starting point or a target you can gradually work toward to strengthen your financial foundation.
2. Save for an emergency
An emergency fund is crucial to financial planning and preparation for a baby. It's a good idea to create a budget and build an emergency fund. As a benchmark, Fidelity suggests starting by saving $1,000, then aim to save 3 to 6 months' worth of essential expenses by funding your emergency savings, as you would for a bill. This can be a cushion in the event of unexpected expenses. Also, setting aside 10% of your monthly take-home pay can help save for both significant events and smaller, unplanned expenses.
Try to save in an account that pays interest but preserves liquidity. For example, a savings account can be a convenient and accessible option. Money market accounts can be too. Other alternatives to consider are money market funds and certificates of deposit (CDs).
You could also automate your savings or set up direct deposits in a dedicated account to ensure consistent savings for upfront purchases like for a car seat, crib, and clothes. You could also try and keep cash on hand to cover basic expenses. This could be a big help in the event of any financial hardships.
As you grow your family, naturally, your budget will change. Restructure your budget to include your new addition and look for expenses that you can cut, to save more. Look for ways to save to add to your emergency fund like buying used or secondhand items or even putting your crafty side to work with DIY nursery projects.
Being financially prepared will help you feel more confident and less likely to pay for things by adding to an existing credit card balance and creating more debt.
3. Think about childcare and education costs
It's wise to factor childcare plans into your budget. It's a big expense and can be even more costly during infancy and if you have multiples. Also, consider what type of care is best for you and your family, for example a daycare center, nanny, family-based care, or preschool. Depending on your location, age of your child, and type of care, cost vary. It's a good idea to vet your childcare centers and compare estimates.
Although you may be thinking about immediate expenses like diapers, you should also keep in mind the type of education you wish for your child—private or public school. If you're considering private school (K-12), those costs vary widely throughout the U.S. and are likely to keep increasing over the years. Do your research, gather estimates, and compare—choosing which option works best for you and your family situation.
Saving early can really help education cost for children during preschool, middle childhood, and during adolescence years. Set up direct deposits in a dedicated account to ensure consistent savings or consider a 529 plan, or other types of education and college savings plans.
Just saving a little bit on a consistent basis can help you get closer to your savings goals.