You are looking forward to a new addition to your family. You and your spouse or significant other are looking forward to becoming parents, whether through birth or adoption. To prepare, you are likely already laying in a supply of diapers, you’ve purchased a crib and preparing the nursery, and you’re researching the perfect name for your new son or daughter. If you’re like many parents, you may have already picked out the child’s pre-school, or even the private school you hope will catapult them to a great career and a great life. Put simply: you want everything to be perfect.
The Importance of Financial Security When Preparing for a Baby
You want your new baby safe and secure, and you want to be the best parent you can be. However, like many parents, you may be missing a few critical elements of being a great parent because you’re not paying proper attention to yours and your new child’s financial security. Not preparing properly for your new child’s arrival has the potential to cause problems, not just at first, but throughout their childhood.
Here are some basic tips you can use to prepare for the arrival of your new bundle of joy, for both your sake and theirs.
Make Sure You Can Take Time Off
Under the Family and Medical Leave Act, both parents are entitled to some time off work for maternity and paternity leave, but if you expect to be paid for that time, you will need to plan because being paid is not guaranteed. That means saving as much paid time off as you can before the big day, and preparing a budget that allows you to take several weeks of unpaid leave and still be able to pay the bills on time.
Research The Child Care Options in Advance
Some companies offeradditional assistance with child care, while some provide full-time childcare. There are also often flexible spending accounts for health-related expenses and prescriptions, and there may be other benefits available. However, you won’t know what’s available if you don’t ask.
Put Your Budget in Balance
The first thing to do when you find out you’re having a baby is to stop spending money on things you don’t need. When you’re about to welcome a child into the family, there is probably no better time to look at your budget, get rid of the fat, and make sure it is in balance, both for now and for the future. That may mean hiring a financial advisor to help you evaluate the actual costs of everything.
- Evaluate your current budget,
- Figure your projected after-baby budget, which will be higher,
- Include all of your wants and desires for life in the first few years of having a child in your math,
- Go over every expense and every bit of income and thoroughly do the math, considering everything,
- If one parent plans to stay home, account for the lost revenue,
- If no one is staying home, you should consider all possible child care options and determine which one fits in best with the needs of the family and your budget.
Start Saving Immediately
Part of any good budget includes savings. Even if you don’t have much saved yet, you can figure out how to squeeze as much as possible out of what you do have. Along with a baby comes a lot of extra expenses. But those additional expenses don’t always go away as they get older. Often, they shift.
However much you can carve out of every paycheck for savings will be welcome. According to financial experts, the idea is to have at least six months of living expenses in reserve, to cover emergencies. If you don’t have that much in savings when the baby comes, a financial advisor can help get you there soon.
Prepare for the Worst: Life Insurance
No one likes to think about the worst-case scenario, but that’s part of being a new parent. It’s also true that the best time to buy life insurance is before you need it. Bringing a new baby into your life is the perfect time to get life insurance.
According to most financial experts, the rule of thumb is to buy a policy at least eight to ten times total income, but the circumstances can be individual, so you should speak to a financial advisor about how much you should have, based on your conditions.
In addition to life insurance, you should also have protection to keep the money flowing if one or both parents is injured and can’t work. Many people receive disability insurance through their employer, but many do not. And even if you do have it, don’t assume it’s enough. You should evaluate the amount and decide if it’s enough to maintain everything should something terrible happen.
Put Together a Will, if Not an Estate Plan
Along those same lines, expecting a new child is the perfect time to get together with estates and trusts attorney to put together an estate plan. At the very least, you should draw up a will.
Creating a will does many good things for your child, and it’s something everyone should do, even though fully half of all Americans don’t have one. An estate plan is the only way to maintain some control over what happens if you and a spouse die. By naming your estate’s trustee yourself, you can choose someone you trust, instead of having to trust the probate process, which means the state appoints a total stranger to divvy everything up according to the law, with no consideration of your wants or needs.
Choose a Guardian for Your Child
Not at last, choose your child’s guardian or guardians, should something happen to both parents. This is a challenging and emotional discussion, but it’s not something you should put off. Putting your child’s future in the hands of people you trust brings greater peace of mind. You can even choose two sets of guardians; those who can raise your child, if it becomes necessary, and another guardian to take care of your child’s finances.
Bringing a new baby into the family is a beautiful experience. Being a parent is also great. However, preparing financially for your new bundle of joy will allow you to concentrate on being a parent with less worry and less stress.
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