It’s finally happened. After months of trying, the strip on the stick finally turns pink. Or you finally hear the good news from the adoption agency. You are expecting. And you couldn’t be happier.
Amidst all the excitement, it’s important to slow down and consider how much your life is about to change. Have you considered the financial adjustments you’ll have to make as parents? This checklist will help you start preparing for a baby financially, planning ahead, and ensuring that this magical experience remains just that—magical.
Planning Your First Trimester
Knowing Your Numbers
Although they say ignorance is bliss, it rarely is. When it comes to preparing financially for a baby, it’s usually better to know the hard facts than to be caught off guard.
Being aware of what it really costs to raise a child can help ease some anxieties surrounding how to prepare for a baby financially. Some people take out adoption loans to help cover costs for a new baby.
The most recent report on the cost of raising a child through age 17 from the United States Department of Agriculture is from 2015. According to the report , the estimated cost of raising a child from birth to age 17, for a middle-income family, is $233,610. Of course, this is just an estimate; how much a child actually costs will vary depending on your financial situation or spending priorities.
Creating a Budget
A great first step when creating a budget is to consider any high-interest debt—like credit card debt—you may have and figure out how best to pay it off.
This can help ensure your credit score is in check—which plays an important role if big-ticket items such as a new house or a safer car are in your baby budget. In that USDA report we mentioned above, housing accounts for the lion’s share of the cost associated with rearing a child (29%) and transportation was the fourth-largest associated cost (15%), close behind childcare/education (16%).
Taking on the Second Trimester
Checking Your Maternity and Paternity Benefits
The ideal amount of recommended time off after having a baby is six months to a year. However, that’s not possible for many Americans. The Family and Medical Leave Act will protect your job for up to 12 weeks after your child is born or after adopting.
It’s worth noting that the law doesn’t require you be paid for the time off, which is typically up to your employer’s discretion. It also only covers “eligible employees ,” so those who are not technically employees may not qualify for these benefits.
Currently, there are only four states that require paid maternity leave—California, New Jersey, New York, and Rhode Island. And it’s coming to Washington D.C. in 2020. Doing your homework when it comes to family leave might help inform your financial decision making in the next few years.
Having a Conversation with Your Partner
Once you understand your parental leave benefits, you may want to have a serious conversation with your partner about what length of parental leave time is right for your family and what you can afford based on your benefits (or lack thereof). Maybe one of you will decide to become a stay-at-home parent—sometimes this can be more affordable than childcare.
Or maybe one of you will take this opportunity to pursue a career change. These are important conversations to have before the baby comes because these can majorly affect your financial plan. If you (and your partner) decide outside childcare is your best bet, you may want to research options before your new family member arrives.
The Not-So-Fun Stuff
Speaking of fun conversations to have with your partner, have you talked about life insurance or writing a will? Though this part of your financial plan is edging on morbid, it’s still essential for many. After all, you’re having a baby and that really makes you an adult now.
If you don’t already have it, you may want to consider life insurance. Ideally, your life insurance plan should cover your annual gross salary times 10 or more. And if you haven’t already drawn up a will, now may be a good time to do so.
If you already have a will in place, you may want to consider updating your beneficiaries to include your new baby. Lastly, you may want to research how to add your new child to your health insurance plan.
The Final Countdown
Saving for Multiple Goals
Remember that USDA report on the cost of raising a child? Well, it doesn’t account for the cost of college. And though saving for something that’s 18 years away may feel overzealous, the earlier you start saving for your child’s education, the easier it can be down the road.
You might consider contributing to a 529 plan , which is a college savings plan that offers tax and financial aid benefits.
While you’re setting aside savings for your kid, it’s also important that you don’t lose sight of your own retirement goals. Your future-self might thank you for not letting your IRA or 401(k) fall to the wayside even while preparing financially for a baby.
In addition to your retirement funds, it’s also important to keep a healthy emergency fund. You never know when life could throw you a curveball, so it’s important to be prepared, especially with an expanding family to care for.
Hurry up and Wait
While it’s tempting to start buying baby clothes and nursery items, holding off for a bit might be wise.
If this is your first born, chances are someone in your life is planning a baby shower for you. Baby showers are typically held four to eight weeks before your due date. You could wait and see what your friends’ generosity or your aunt’s knitting hobby brings you, and then you consider buying whatever is missing on your list.
Another great way to potentially save costs—up front and down the line—is to approach friends and family members who’ve had children to see if they have any hand-me-downs. It’s not as exciting as buying new, but you can save yourself money that could be allocated elsewhere (like that college fund).
Tracking Your Finances with SoFi Money®
Working on your budget before the baby comes? If you’re looking for an easy way to track your money, SoFi Money might be the answer. SoFi Money allows you to track your spending and manage your money, which could include automating debt payments and setting a budget. The best part? It’s all in one place, so you don’t have to juggle 874 spreadsheets.
SoFi Money is a cash management account where you can spend, save, and earn all in one place. You’ll earn 0.20% Annual Percentage Yield (APY) on all your cash and pay no account fees. We work hard to give you high interest and charge no account fees. With that in mind, our interest rates and fees charged are subject to change at any time.
Planning for a baby gets pretty complicated—let SoFi Money simplify your finances.
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