Congratulations, you’re a new parent! At this point, you are probably worrying about the practical matters surrounding how you are supposed to take care of a baby, but you should also be thinking long-term. As soon as the child is born (or even before), there are a few steps you need to take to ensure your family’s financial future.
Adjust Your Household Budget
If you did not keep a budget before, now is the time to start. If you did, now is the time to make some adjustments. Don’t get overwhelmed looking at estimates of how much your child will cost you over your life: instead, focus on the first-year costs, which there are several online calculators to help you estimate.
Your biggest ongoing expenses will be diapers, formula, and, to a certain extent, clothes. You can save on all of these by looking for coupons, sales, and free samples online.
Sort out Your Estate Plan
Your will is what is going to ensure that your assets end up where you want them to in case anything happens to you. If you have a relatively simple estate, you can save a lot of money on a lawyer by using a will template. Make sure to include a guardianship clause determining who you want to take care of the child in case both you and your spouse pass away.
Get Life Insurance
Term life insurance is cheaper than whole life insurance, and allows you to only pay for insurance until your children are financially independent (usually 20 or 30 years). It ensures that your family will be taken care of financially if you pass away within the length of coverage. You can use an online calculator to estimate how much you are likely to spend on term life insurance, which can help you decide when you’re shopping around.
Double-Check Your Health Insurance
If you have workplace-sponsored health insurance, check what your family coverage is. If you don’t have access to insurance for your children and if your income is too high for Medicaid, you may be eligible for the Child’s Health Insurance Program. For most children, the cost of this is free, and it covers everything from routine doctor visits to prescriptions, dental, and immunizations.
Build a Safety Net
It’s now more important than ever for you to have a safety net in case of emergencies. Dave Ramsey recommends a three-month emergency fund (i.e, three months’ worth of living expenses) for double-income households, but six months for single-income families or those who rely on self-employed income.
Start Saving Early for College
Due to how compound interest works, you will end up with a lot less money (having put aside the same amount) if you wait until your child is older to start saving for college. According to Kiplinger, you should start small (even just $15 a month will do) and scale up. A 529 Plan is the most popular option, but you could also choose to put the money in a Roth IRA in case your child decides not to go to college.
Claim Tax Breaks
Tax breaks for parents include child tax credit (up to $2,000 per child), dependent care expenses (up to $3,000 on care costs), and several options to support your child through college. It is also easier to claim for earned income tax credit once you have children.
Keep Saving for Your Retirement
According to research by the Stanford Center on Longevity, Americans should be setting aside 10 to 17% of their income towards retirement if they want to retire at 65. As a new parent, it is tempting to divert all your savings into the future of your child, but you should never stop preparing for your own future as well. Trust us, your children will want to see you secure and comfortable when you get older.
Financial planning as a parent can be scary, but it’s okay to take things slowly. As long as you stick to a budget and put money away regularly, you are doing the right thing. The sooner you make concrete plans for these things, the more you can enjoy your baby’s first years safe in the knowledge that your family is safe and secure.
Sara Bailey is a widow who lost her husband when she was 40. She is a single mom raising a son and a daughter. She is currently writing a book called “Hope and Help After Loss.” Her blog can be found at thewidow.net.