How to Prepare Financially for a New Baby

Last week we discussed how to properly prepare for the end of life, so this week we are investigating the reverse: how to prepare for the start of life, or a new baby (cue “The Circle of Life” from The Lion King).While the pandemic initially slowed birth rates, researchers believe that we can expect a baby boom in late 2021 and early 2022, so this topic is especially prescient. It’s no secret that there’s a lot to do to welcome a new life into the world. You have to safety-proof your house, collect clothes, diapers, toys, furniture, and other supplies for your little one, and of course take care of your own physical, emotional, and mental preparation as well. It’s also no secret that children are expensive. Some studies suggest that first-year expenses related to the birth of a baby can add up somewhere between $20,000 and $50,000, which is admittedly an intimidating figure. A lot changes when you have a baby, from your daily schedule to your body to how much sleep you’re getting, and your financial situation is inevitably altered as well. We’ve compiled some tips for expecting and new parents to alleviate some of the stress related to providing for your newest family member, so that you can enjoy every moment and focus on the exciting parts of this new phase of life. 

• Once you’re done baby-proofing your house, make sure that you baby-proof your health insurance plan too. Add your child to your health insurance plan within 30-60 days of delivery. 
• Adjust your HSA Contributions. You can use money in your HSA Account to pay for doctor fees, formula, and even random baby-related items such as breast pumps and baby sunscreen. 
• Consider FSA accounts, or Flexible Spending Accounts, which enable you to use pretax dollars to pay for things like child and healthcare expenses. 
• Buy term life insurance at a cheap monthly rate. This hearkens back to our more grim blog from last week, but now that you are responsible for more than just yourself, it’s a good idea to invest in life insurance. 
• Update your tax forms so that you claim dependent tax breaks. Rather than deductions, these tax credits are dollar-for-dollar reductions of your tax liability. You can also look at the Earned Income Tax Credit and the Child & Dependent Care Credit to make sure that you’re only paying what you should in taxes. 
• Create a will - although if you’re reading this, you probably did that based on our suggestion last week, but make sure that you update your will to include your newest beneficiary. 
• Consider long-term disability insurance, which provides coverage in the event you are sick or injured. Consider the details of your personal situation to determine if this step is necessary.
• Develop a household budget (or adjust your budget if you already have been working from one). This will keep you from being blindsided by the change in your monthly expenses that your newborn has introduced. Parents can spend up to $30,000 per year on each child after the first year, so it’s worth putting in the time to determine exactly what you can expect in terms of impact on your expenses.
  • There are a lot of one-time costs associated with a new baby such as furniture, a stroller, and other big ticket items. You can cut down on this cost by borrowing from family or friends whose children have outgrown their items.
  • There are also many ongoing costs which include healthcare, child care, food, clothing, diapers, and other necessities. These are the kinds of things that it will be important to budget for. 
• Build an emergency fund. Now that you are taking care of more than just yourself, it's extra important to have a "nest egg" tucked away so that in the event of an emergency such as an accident, illness, or natural disaster, you will have enough money to take care of your family. 
• Start saving for tuition. Even if your child does not end up using the money for college, it never hurts to start saving for their future needs early. 

With these financial to-dos appraised and taken care of, you'll be able to enjoy getting to know the newest member of your family without as much stress looming in the back of your mind. Of course raising a child is an ongoing journey, and the team at NEST is ready to help you with every step of the way. We help Austin families build financial plans so that they can look into the future with confidence and excitement. A NEST financial plan can eliminate fear and lessen anxiety so that you can focus on your growing family. Our NESTIntel software is also capable of playing out hypothetical scenarios so that you can see how certain changes in your life - such as having a baby - might impact your finances, empowering you to adjust your spending and lifestyle accordingly.Send us an email at info@nestfinancial.net to learn more about our financial planning services and let us help you check 'preparing your finances' off of your new parent to-do list. Find us on:LinkedIn  Facebook  Yelp  TwitterDISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.