You have been preparing for months for the moment you can bring your new child home. The crib is set, nursery painted, and diapers are all lined up in preparation for your family's new addition. Although you have your game-face on, you may still be stressed due to the many things you can’t predict when it comes to having a baby. One way to reduce that stress, is to make sure you have your finances in place. Here are 5 financial tips for new parents to help you do just that:
Plan your budget
When you’re having a baby it’s pretty well understood that you’ll need to spend more money, but by planning ahead you can ensure you won’t overdo it. If it is a first child, there are many one-time expenses that will need to be purchased (e.g., crib and stroller). Plan your budget accordingly, and take good care of these more expensive items, so you can potentially use them for future children (or even resell them). On average, families can expect to increase their budget between 10-15% more in their child's first year. Write out your budget and hold yourself to the plan that you set forth.
Rethink your emergency savings
It’s recommended that you have at least six months worth of monthly expenses within your emergency savings account, and with a new child, you may want to consider extending that even further. Consider how much more you will be spending monthly (according to the budget that you planned out) and add that toward your savings account. Another option is a MoneyLion Plus membership, which offers you a monthly savings plan into a managed investment account, along with access to 5.99% APR loans, and credit monitoring. Check out the MoneyLion app or learn more at moneylion.com. You will be thankful you did should any emergency medical bills or changes in employment happen.
Consider life insurance
Life insurance is one expense that many consider unnecessary, but having a child is a game changer. Term life insurance is meant to cover your income should you not be around to provide for your family. The term of your policy will usually be between 15 and 30 years, which is just enough to cover your child through adulthood. If you’re not sure how much coverage to get, add your yearly salary, times the number of years until your child is 18, and then add the anticipated cost of a four-year college. Although it sounds like a lot of money, term insurance is known for being affordable and can starts as low as $10 a month.
Start planning for college education
Speaking about the cost of college education, it can get expensive! Currently, the average yearly cost of a four-year public school is around $10,000 for a public college, and $34,000 for a private college. That’s not even taking into consideration that prices go up each year. The earlier you start planning the better. Start a separate savings account dedicated to your child's college education, and set up an automatic monthly contribution through your bank. An interest-bearing account works best for long-term savings, or try a 529 plan, which is a tax-advantaged savings plan designed to encourage college savings. If you don’t have enough saved up when it is time for school, you may consider student loans.
Don’t forget to take care of your financial future
Many new parents get so swept away with the excitement of a new baby, that they forget to take care of their own personal financial goals. Retirement planning can often get put on the backburner during this time. It’s important to realize that your future goals and responsibilities are still just as important as before. If you must discontinue contributions into your IRA or 401(K), do it for as little time as possible. You want to contribute as much as you can early in your career, so you can take advantage of all that interest you could be earning. Find out how much you will need in retirement using our retirement calculator.
Although it may seem like all your new baby does is eat, sleep, poop and drain your wallet, they still manage to warm your heart. With sufficient planning, you’ll limit stress, and allow yourself to enjoy this precious time. Congrats!
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