The 10 Things To Do Right Now (Financially) When Expecting A Baby
Becoming a parent is the most life-changing event that many will experience. You are suddenly not only responsible for yourself, but also another person who depends on you for everything.
When getting ready to embark on this exciting (and, perhaps, scary) new adventure, preparation is key. Both before the baby arrives and in the weeks after, it’s especially helpful to be ready for the financial changes to come. It’s estimated that total child-rearing expenses from birth to age 17 for a middle-income American family is now $310,605. Although the range of expenses across families is wide, the truth is that adding a little one to the family is quite expensive.
To help new parents prepare for and navigate these changes, we have created The Top 10 Financial Focal Points for 2024. Making the necessary financial arrangements now will minimize stress down the road and allow you to spend the most time loving and caring for your newborn.
Aren’t I so cute?
So cute that it makes you wanna keep reading and share with a friend by email even if you’re not having a baby….
1. Add your child to your health insurance plan
This might seem silly, but it can easily go overlooked with all the excitement of the newborn. Additionally, if you’re doing an in-home birth, private birthing experience or there is an emergency it is easy to be in the moment and overlook items you would normally think of. Don’t take it for granted that your healthcare provider will contact you to do this. Your child is one of one, or one of few, to you yet 1 of millions to a healthcare provider. Be proactive in taking the appropriate steps to add your child to your existing coverage or establish coverage as soon as possible. You do not want to wait ‘till its time for the first check up and realize you are covered and your child is not. Most plans typically require that your child is added within 30 or 60 days post-delivery. If done within the appropriate time frame, your child should be covered retroactively — meaning anything that would typically be covered under that policy that occurs between birth and enrollment would be covered.
2. Evaluate Your Life Insurance
When growing a family many parents must weigh the cost and benefits of everything. Life Insurance is also an aspect that some have never thought of or are not sure what is the sufficient amount now with a child. It is important to note that there is no “one type of plan everyone should have,” but it is important to evaluate your family goals. There is a wise quote that goes, the best type of life insurance to have is the one you have when you need it. If you are just concerned about death and low cost then term life insurance might be the better option. If you are one who is more concerned with wealth and benefits then it might be worth exploring other types of life insurance. Unlike car insurance, which you might use someday, life insurance is something that you will use because we all at some point have an end date. It is vitally important to evaluate what goals and objectives you desire to accomplish along the way when planning for a newborn in your growing family.
Since the amount of recommended coverage varies by many factors, we partner with a non-profit with no selling or buying option, for you to calculate the appropriate life insurance coverage for your family. The best thing about this calculator is there are no-quotes and no sales pitches, just the information. Then if you wish, you can share with your financial professional to evaluate your life insurance needs. [Use the Free Calculator Here]
3. Adjust your HSA contributions
Health savings accounts, or HSAs, are an often underappreciated pre-tax benefit that lets you pay for qualified medical expenses with pre-tax dollars for a variety of current and future healthcare expenses for you and your family. Most importantly, any money you contribute and don’t use in a given year will roll over to the next year.
If you are a member of a qualifying employer-sponsored health plan, HSA contributions — which have an annual limit of $7,750 for families in 2020 — can be taken out of each paycheck. Most people, however, don’t actually max these out, but you should consider it, especially with the increased health and wellness expenses that come with a newborn. The money in your HSA account can be used for a wide variety of qualified health-related products and treatments, including doctor’s fees, infant formula, breast pumps, and even baby sunscreen.
4. Claim the Child Tax Credits
As of 2024, the Child Tax Credit will be around $2,000 per child (after briefly being expanded during the pandemic), providing a terrific opportunity for parents to save money. The income limit above which the tax credit begins to phase out is $75,000 for individuals and $150,000 for joint filers. Unlike a deduction that lowers your taxable income, a tax credit is a dollar-for-dollar reduction of your tax liability. It is important to revisit your previous tax situation and claim your child now as a dependent that will, in most cases, be beneficial to your tax filing. Although we do offer tax advice, you should discuss your unique scenario with your tax planning professional.
5. Create or update a Living Trust or Will Immediately
In the event of your untimely death, it is critical to have arrangements in place for your children. Who takes care of them if minors or who manages the assets and so on are all vital aspects in planning. A will or living trust will allow you the peace of mind knowing your kids will be in the appropriate care. You may also choose a separate trustee of the estate, who will manage the accounts and assets until your children reach legal age. It could also be valuable to talk to your parents and kids’ potential guardians about your wishes so it will be easier to execute if necessary. Often the question comes up: what’s better a Will or a Living Trust? The short answer is if you live in a high tax state you probably need a Living Trust, but to find a deeper answer read or article on Will vs Trust here.
Don’t Procrastinate, you know you need to do this…
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6. Create a LIfestyle Worksheet
Ok yes, that might be a fancy term for creating a budget, but shifting the way you think about money for your growing family will help stay in a financial growth mindset as well. With a new child comes new expenses, new adventures, and new opportunities that you probably would not think of without a child. Baby clothes, diapers, more food, childcare expenses and OMG-thats-so-cute, I-have-to-get-it, can add up quickly. Not to mention your personal expense plus the prenatal and postnatal medical care. Some expenses, like diapers, books and toys, are recurring, while a stroller or car seat might be one-time investments. Regardless of what the new expenses are, it is better to have a clear picture on how they all play a role into the lifestyle that you desire.
8. Enhance Your Emergency Fund
Unemployment is stressful, but especially so when your family is growing. That’s why it is helpful to have an emergency fund that will cover 7-12 months of living expenses in the event of a layoff or change in employment. An emergency fund provides a comfortable cushion for a new parent while searching for a new job, and should be calculated based on the new family budget. In fact you may get new light, new motivation or new ideas while on leave that may spark your career desires in a new direction. An emergency fund allows you that flexibility to explore those options without having to worry about money in the meanwhile.
9. Remember Your Own Retirement
With so many things to remember about your child, it is easy to forget about yourself. However, just like they tell you on a plane, you need to put on your mask first and then proceed to help others. Consider taking advantage of any employer-matching 401(k) contributions, which is “free money,” and set up an automatic withdrawal of your retirement contributions to eliminate the mental hurdle of saving each month.
A statement we have often used in financial planning is that you can borrow for college, with a plan to pay it back, but you cannot borrow for retirement.
10. Start saving for your child’s tuition
The average tuition and fees for private four-year institutions were $39,400 for the 2022-2023 school year, according to The College Board. Even when adjusting for inflation, that’s more than double what it was 30 years ago. Despite this, only 13% of millennial parents place college savings as one of their top child-related financial priorities — perhaps because the expense seems so far off. While it might not feel like an immediate priority, the sooner you start saving for school, the more options your child will have. Not to mention we said tuition, not just “college tuition” so remember to plan for the primary education if this is the direction you plan to take. It's hard to not feel overwhelmed but relax and just plan. Contact us, or your advisor as needed to talk it out and take the exalt. A good financial meeting does not need to be formal in a suit in a boring office, it just has to be valuable.
One of the common ways to invest for kids’ education is through a 529 plan but also consider alternatives. Even if you're not a mega-millionaire, have a peek at our article, What the wealthy do to plan for college even when they have the money. Here’s a hint, it’s about tax strategy which is why early planning is important.
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There you have it, Ten! While this might be a lot to take in and might feel daunting, just start early. Don't take these actions in the order listed, but in order of importance. Whatever is most important to you, do that first. Then, as the saying goes: Do the thing and you’ll get the energy to do the thing. Meaning just get started on something above and the momentum will carry you into the next and soon you’ll have a huge exhale that you are on the right track to building financial wellbeing for your growing family.