Almost as soon as you learn that you are expecting, you may begin to think practically about the future. The concept of children being expensive to raise from infancy through to adulthood is well-known, and the thought of the financial impact of having a baby can make even those with a high income feel stressed.
The good news is that learning how to prepare for a baby financially and following through on these steps can ease your mind and help you to enjoy greater financial security and peace in the coming months and years. These are some of the more essential steps that expecting parents should take.
Reduce Debts
As you explore how to get financially ready for a baby, your first step should be to take stock of your current finances. Specifically, examine your debts. When you regularly pay hundreds of dollars or more in monthly debt payments, you are tossing money out the window that could otherwise be used for savings and to pay for baby-related expenses. Now is the time to reduce your debt balances. Consider consolidating high-interest rate debts into a low-interest rate personal loan, or explore other financial strategies for decreasing debt substantially before your baby is born.
Focus on Building Savings
Financial planning for new parents also should include building a solid balance in your savings account. This should not be money that is invested in stocks, bonds or other investments. It should solely be saving money that is earmarked for emergencies and unplanned expenses.
To ensure your financial security, begin by saving up at least three months of your family’s expenses in this account. Gradually increase the amount saved to six or even 12 months of expenses. In the event of a job loss, a serious illness or some other significant event, this money can be used to cover living expenses.
Have Extra Money On-Hand Initially
In addition to saving more money in a savings account and paying off debt, you also should take the additional step to save extra money for the arrival of your baby. Research your healthcare coverage, and understand the potential expenses that you may be faced with if special medical care is required during labor and delivery. Be prepared for one or both new parents to take a couple of months off of work. Understand that a baby will rapidly outgrow clothes during the first few months. Diapers, wipes and more may also be used heavily during these months. As your baby gets older, growth and the need for diapers may become more moderate.
Create a New Budget
Now is also the time to take a close look at your current budget plan. Think about how the baby’s arrival will change your budget. You understandably will need more money in your budget for groceries, clothing and medical expenses. Will one parent quit working after the baby is born, or will you need to pay for childcare expenses? Both of these possibilities will have a major impact on your budget.
Financial planning for new parents should also include more money allocated toward savings. You may find that you need to dramatically adjust your lifestyle. Perhaps you need to move into a different house, buy a larger car or take other steps before the baby is born. If you are not conversant with budgeting, try this free budget calculator or something similar to this to analyze your budget in details and to find more opportunities for saving.
Buy Life Insurance
Financially preparing for a baby also needs to include planning for a worst-case scenario. In the event that one or both parents pass away, the baby will need financial support for several decades. Buying life insurance before the baby is born is a veritable necessity in most cases. You also should prepare a will or update your current will to state who will have custody of the child. Your life insurance benefits should be conveyed to this person in the event you both pass away. While this aspect of financially preparing for a baby can be difficult to do, it can help you to find peace of mind and can protect your child’s well-being going forward.
When you explore how to prepare for a baby financially, you can see that there are numerous essential steps that require your attention. Each of these steps serves an important purpose and should not be overlooked. It may seem overwhelming at first, but remember that you have many months to work on these steps. Because the baby will arrive before you know it, now is a great time to get the wheels in motion for each of these financial planning steps.