According to the National Center for Health Statistics, August is the most popular birth month, which means this fall will be filled with new parents embarking on a rewarding but often overwhelming journey filled with new routines, tons of tiny clothing, and some big questions about the future—especially regarding finances.
Having a child can be expensive, but proper preparation can make it much more manageable. Here are six simple financial tips for new parents.
1. Sign your child up for health insurance
Whether your new baby is going on your insurance, your partner’s insurance, or both, you’ll want to add them to a plan as soon as you can—or as soon as they are born, if possible. A new dependent is a qualifying life event, so there’s no need to wait for your insurance plan’s open enrollment period, and you’re typically allowed to apply for coverage retroactively if the newborn is added within 30 days of their birth. If your health insurance includes a health savings account (HSA), consider increasing the amount you contribute to maximize these tax-fee dollars that can be applied toward physician’s fees, baby-feeding equipment, and other qualified medical incidentals.
2. Buy life and disability insurance
You’ve made it your duty to provide for your family, but will they have financial support if something happens to you? Life insurance can be quite affordable and absolutely critical if an unexpected tragedy were to occur. Even a serious injury or illness can affect your ability to work and provide, so disability insurance—which pays a portion of your income for a specified time period—can be a livelihood-saver.
3. Update your tax forms
The amount and distribution method have been changing in recent years, but the bottom line is the same: Having a child may earn you tax benefits. Dependency exemptions, the Child Tax Credit, and the Child and Dependent Care Credit may help cover childcare, education, and other expenses that can decrease your income—so when it’s time to file your taxes, be sure to update your IRS forms to include the new addition to your family.
4. Adjust your household budget
Having a baby brings about additional expenses, both expected and unexpected. To plan for the former, adjust your existing household budget to include frequent doctor’s visits, an endless amount of diapers, and clothing they will constantly outgrow.
5. Establish an emergency fund
To address the aforementioned unexpected living expenses, create (or adjust) your family’s emergency fund. Your savings should already include enough to cover six months of unemployment, and this amount may need to increase when you add a child to the equation. In addition to stashing away money in your savings account, you can consider certificates of deposit (CDs), money market accounts, and other financial products.
6. Start saving for college
A lot will change in the world between now and when your child is college-aged, but one thing that’s likely to remain the same is that education will be expensive. Prepare for your child’s future schooling by being financially smart now and opening a savings or 529 plan, a tax-advantaged savings plan. Savings can be applied to four-year, two-year, technical, and trade institutions, as well as textbooks, room & board, meal plans, and groceries.
Congratulations on your new bundle of joy and on beginning your responsible financial journey. Keep up this planning and you’ll be able to rest easier—when your child allows it!
