5 Ways to Financially Prepare for Your First Child
From researching car seats and cribs to decorating a nursery, there's a lot to do when you're expecting a new baby. In addition to readying your physical house for your bundle of joy, you'll also want to be sure your financial house is in order.
“I can't think of a more important time to start thinking about your finances," says Erica Sandberg, author of Expecting Money: The Essential Financial Plan for New and Growing Families.
While it may seem overwhelming to add yet another item to your to-do list, some smart financial planning now will ensure you're prepared for the changes that come with having a child. Sandberg offered five financial tasks prospective parents should prioritize before their newest family member arrives.
1. Create or review your budget.
You may have been living easily on one or two incomes without a child, but having a baby brings additional expenses — not to mention potential changes to your income. “When you're in the midst of it and you're trying to make ends meet and you probably haven't slept a lot — that's the worst time to start thinking about your budget," Sandberg says.
For expectant parents, the first step is simply getting a clear picture of how much you earn, how much you spend and how much you save. That way you'll be able to make informed decisions about how much leave you can take, how much you can spend on childcare and whether you can afford to reduce your work schedule going forward. Online budget tools can help you set up a monthly budget and track your expenses.
2. Prepare for your parental leave.
Investigate your employer’s parental leave policies (duration, flexibility, etc). If you plan to take unpaid leave, examine your budget to see how long you can last on an abbreviated income and then start saving for those paycheck-free months ahead.
3. Contemplate childcare costs.
If you anticipate needing childcare, you'll want to explore your options, as the cost of care varies by region and type of care. Assess what you can spend, investigate what's available in your area and consider creative ways to save. For example, Sandberg notes sharing a babysitter with one or two other families can greatly reduce the expense and, as an added bonus, gives your baby some instant buddies.
4. Purchase life insurance.
“Now is the time…to start thinking about life insurance," Sandberg says. Should something happen to you or your partner, life insurance can prevent further financial ruin and provide for your child's immediate and future needs.
5. Create a will.
Most people think of wills as a way to distribute your assets. But even more importantly, your will designates who has guardianship of your child in the event you and your partner pass away. Creating a will doesn't need to be complicated, Sandberg says. You can even use an inexpensive online service or store-bought documents to name a guardian. But doing so is imperative: If you don't choose someone, the court will choose a guardian for your child — and it may not reflect your wishes.
For expectant parents, the months before baby arrives can feel like a whirlwind of activity. But taking the time to financially prepare for your little one can provide peace of mind during this busy time, and allow you to focus on your family after your baby's arrival.