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Whether you’re a new parent planning for the future or you’ve already got a child on the way, the prospect of having a baby can be both exciting and nerve-wracking at the same time. On top of adjusting to the sleepless nights and endless diaper changes, you now have to start thinking about how you’ll fund your new child’s needs. Childbirth alone can average $13,811 in medical costs, to say nothing of the $12,350 to $13,900 per year that is required for a middle-income family to raise a child.
These expenses might sound overwhelming at first, but with a little financial planning, you can help your family save money and approach the future with confidence. Here are several tips to help new and expecting parents financially plan around a new addition to the family.
1. Shop for Insurance
Health insurance is crucial for newborns and parents, so think about adding your baby to your insurance plan as soon as possible. Your insurance should cover the delivery of your baby as well as their post-birth care, including subsequent wellness visits. Since having a baby is a qualifying life event, you’re allowed to change policies or upgrade to a higher tier of coverage if that would better suit your family’s needs.
You never know when a sudden injury or illness could keep you from working — and for how long— so disability insurance might also be a wise investment to protect your earning potential. You’ll want to consider a policy that can cover essential costs like debts, childcare, and different household expenses.
You can also opt for a life insurance plan to replace part of your income in the event of an untimely death. This can serve as a safety net for your family, helping them pay for things like a mortgage, childcare, and college tuition.
2. Get your estate plan in order
Fewer than one in three adults have a living trust or will in place, CNBC reports. Without these legal documents, the handling of your finances can quickly become complicated in the event of an unexpected death, potentially burdening your loved ones with
unnecessary confusion and heartache. That’s why it’s important to decide where you’d like your assets to go and stipulate other end-of-life preferences. While these can be difficult subjects to talk about, setting up a trust account or will can save your family and your children time, money, and stress should anything happen.
If you already have an estate plan in place, it’s important to update this document regularly with your attorney, especially when you’re expecting a newborn. Outside of the financial concerns, a living will also allows you to assign a legal guardian for your children so you can ensure that they’re cared for if you’re not able to be around.
3. Start a College Fund Early
In 2021, the average cost of tuition at a public college was between $10,740 and $27,560 per year, the College Board reports — and that price is only expected to increase in the coming years. While things like grants, scholarships, and other forms of financial aid mean you likely won’t have to pay all of this out of pocket, it’s best to start planning in early childhood or sooner. The earlier you start saving for your children’s college tuition, the less stress you’ll encounter when your children hit these milestones years down the line.
It’s generally advisable to open a 529 college savings account (or another account that serves the same purpose) on behalf of your children as soon as reasonably possible to give your contributions more time to grow. Some parents choose to start saving when a pregnancy is confirmed, while others wait until after their child is born. Note that the stated beneficiary of the account must have a social security number, so if they’re still unborn, you’ll have to name another beneficiary in the meantime.
4. Take Advantage of Tax Breaks
It’s no secret that childcare is expensive. Fortunately, though, the US government offers many tax breaks to parents just for fulfilling their day-to-day parental duties. Depending on your income level, the Child and Dependent Care Credit can cover up to 35% of eligible expenses; however, there is a limit of $3,000 for a single child and $6,000 for multiple children.
Flexible spending accounts (FSAs) are another tax-advantaged option that parents can use. These employer-sponsored programs cover out-of-pocket costs for health and childcare. That includes expenses for daycare, Pre-K school, and before- and after-school programs for children up to 13 years old.
5. Bolster Your Emergency Fund
Emergency savings accounts are an essential part of your family’s financial safety. These “rainy day” funds exist to protect you and your loved ones in the event of an unexpected job loss, injury, illness, or any other unforeseen expense. It’s recommended that parents keep between six and 12 months’ worth of living expenses tucked away in case of emergency. You may want to consider housing these funds somewhere where you can easily access them as needed, like a high yield savings account.
6. Don’t Lose Track of Your Retirement Plan
While planning for your children’s future is critical, you can’t forget about yourself. Raising kids is hard work, and you deserve to retire when you’re ready. To help ensure you can support yourself later in life, take advantage of your employer-sponsored 401(k) program—especially if the company you work for matches a certain percentage of contributions. If you don’t have access to a 401(k), use an IRA. These long-term savings accounts are great ways to grow your nest egg over the course of your working life. After all, you may not want to depend on financial support from your children later in life.
If you’re a new or expecting parent looking to get your finances in order, please reach out and schedule a call. We are all parents at CAM Investor Solutions, we understand where you’re at and want to help.
M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees.
This blog has been provided solely for informational purposes and does not represent investment advice or provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.