A baby on the way is a very exciting time for any family. Whether you're new parents or adding to your growing family, preparing for your new arrival can already feel like a handful. Aside from the upcoming sleepless nights and never-ending diaper changes, one of your biggest concerns is probably your finances. According to Parenting.com, the average middle class family will spend $12,000 on child-related expenses in the baby's first year of life.* That's not a small chunk of change. So how do you prepare financially while trying to juggle all the new responsibilities that come with a new baby?
It's definitely not an easy task and there's no rule book on how to parent, especially when it comes to finances. One tip we know works though, and it's that the earlier you start preparing, the better you'll be able to set up for your baby's future. Before your baby's arrival, take a look at this checklist on easy things you can do to financially prepare now:
Redo your budget
With the arrival of your new bundle of joy, life as you know it will probably never be the same again. The same goes for your budget. It's time to review and redo your budget, as baby expenses will now take up a large portion of your spending. Do your research and understand how much baby items really cost. From food to diapers, it's probably more expensive than you think. You should also make a shopping list of everything you need once the baby arrives. From there, once you have an estimate, figure out how you can scale back your budget. Obvious areas to cut back on are entertainment and dining out. (As new parents, you probably won't have time for that anyway!)
Understand your health insurance
One of the biggest costs to a new baby is the medical costs. Not only does your baby need health care, which is especially crucial in his/her first year, but labor and delivery costs can be significant as well. Well before your expected due date, take some time to understand your health insurance. Be sure to understand what is covered and what you will be paying for out-of-pocket. Also, once your child is born, make sure to add him/her to your own policy. Most health plans require you to do this within 30-60 days. Also, consider choosing a pediatrician that is within your network, to limit costs.
Shop wisely for baby items
There are so many cute baby items on the market that you'll probably end up spending a fortune on. Try to prevent that from happening, though. Yes, you'll want to spoil your baby and that's totally fine, but keep in mind that babies grow into toddlers very quickly. That also means they'll quickly grow out of those expensive clothes and toys you bought. There are a few items worth the cost, but learn to shop wisely for baby items and spend where it makes the most sense, like gear and food.
Plan for childcare
Most companies in the United States offer new mothers, at most, 3 months of maternity leave and much less for dads. Eventually, you'll have to go back to work and think about childcare. Having the help of grandparents or other friends and family will save you a ton, but if not, make sure to plan for the expenses financially and well ahead of time. You will also want to interview nannies or visit daycare centers to make sure you find the right fit for your family.
Note from David Ning, Moneyning: Make doubly sure to look for childcare options early. Daycare centers in many parts of the country have a wait list, so you don't want to be stuck with ones that have many openings for your kid. You also want to make sure the daycare is licensed to take care of infants at the age when they first arrive at the facility. This is all standard for childcare centers so they will ask you when you actually get there, but never assume on your own and confirm with administration well before you have to drop them off.
Start thinking about college
Lastly, it's never too early to start thinking about college. It may be 18 years away but it's also a huge expense, so you want to start preparing for it now. You should start putting away money for your child's education as soon as possible. Consider putting your money into a 529 college savings plan, where earnings will grow tax-free and won't be taxed when taken out to pay for college.
Your finances will change drastically with a baby on the way, but you'll be able to worry less and spend more quality time with the little one with the right planning and prepping.
* United States Department of Agriculture, Expenditures on Children by Families, 2015, January 2017 Revised March 2017 https://www.cnpp.usda.gov/sites/default/files/crc2015_March2017.pdf
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
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