Start by reviewing your current budget. Consider what you can adjust to accommodate new expenses, like childcare, formula, diapers, and clothing and plan for any lost income from parental leave. Revisit your spending habits and look for ways to better budget your household income and how it might change as new parents.
Look into your current employer-sponsored benefits package. When your child is born, you should be able to change your benefits enrollment status and add your child to any plans you’re offered, such as medical, dental, vision, and life insurance. Be very clear on how your health insurance policy works and watch for different deductibles and out-of-pocket maximums that will vary if you change from an individual plan to a family plan.
If your company offers a Flexible Spending Account (FSA) or a Health Savings Account (HSA), you may consider putting a bigger allowance in it prior to the birth of your child. Most FSAs and HSAs will cover deductibles and co-pays, as well as new medical expenses that can come with babies. Adding to an FSA or HSA lowers your taxable income but you should note that unspent FSA money is normally lost, so check your firm’s requirements and estimate your needs in advance. HSA plans allow funds to rollover, so be sure you plan accordingly.
Find out if your company offers accident insurance to ensure that you’ll have financial protection even in the case of an injury, which is even more important as you become a new parent. Your company might also offer critical illness insurance, which can help cover expenses if you or a dependent are diagnosed with a critical illness. This protection may include childhood conditions such as Down syndrome and cystic fibrosis. You’ll need to have this insurance in place in advance of your child’s birth to ensure coverage.
You may want to reevaluate your life insurance coverage or acquire a life insurance policy to have financial confidence that your child will be protected no matter what happens to you. You can choose from term life insurance, which will last for a specific number or years, or a whole life insurance policy, which is intended to last your lifetime as long as your payments are current and helps you to build a long-term cash-value asset.2,3
Disability income insurance can help to replace a portion of your paycheck if you become too sick or injured to work. This can help protect your income as you support your growing family.
Saving for college should be treated separately from other long-term savings goals, such as retirement. 529 plans, for example, are vehicles specifically designed to save money for college.4 If you save money in a 529 plan early on, both the balance and interest will compound and grow. You could also use a permanent life insurance policy — which has tax advantages and spending flexibility — to build college savings.5,6 Getting started is the most important thing for new parents, so save what you can now and you can always increase the amount as your income grows.
Whether it’s before or after your child is born, it's important to set up a financial strategy that will enable your family to grow and prosper. You should also consider creating a will specifying what will happen to your resources in the future. Speak with a financial professional, who can help make recommendations about how to best protect your new family and arrange your finances so that you can further the opportunities for both yourself and your celebrated new arrival.
Welcoming a new child to your family can be both exciting and overwhelming for parents. The steps you take today can help you to prepare for responsible parenthood.