How to Financially Prepare for a Baby
Having a baby is an exciting and momentous time in your life. Once she or he arrives, you will be juggling providing care with welcoming excited family members and, most likely, trying to find a chance to sleep. The last thing you want to worry about during this time is your finances. Advance preparation is essential, and the tips below can help you financially prepare for a baby.
Review Your Health Insurance
Your new child will need to be added to your current health insurance policy. Contact Human Resources (if you are covered through your employer) or the insurance provider directly for next steps. It’s possible that not every expense will be 100% covered, so it makes sense to learn this information before the birth occurs.
Your family, friends, and coworkers will be thrilled for your new arrival and wanting to help with the cost of acquiring baby-related items and supplies. You will likely host a baby shower at some point before the child is born, but you should also create a baby registry. This can help you defray the costs of major expenses, such as cribs and car seats, as well as less expensive items like diapers and apparel.
Set Up a Baby Account
As you may have guessed, the list of needed items and supplies for welcoming a baby can be lengthy. It is smart to establish a separate savings account where you can put money aside to pay for these items. Setting up an automatic transfer to deduct an amount from each paycheck is an effective method to save these funds.
Create a (New) Budget
If you already have a budget in place, you’ll need to adjust it as part of financially planning for a baby. Consider cutting items or services that may not be essential or must-haves. In addition, it is wise to start accounting for the recurring baby expenses, such as maintaining a diaper supply each month.
Start a 529 Account
While it’s true that your child’s higher education is a long-term investment, you might consider starting a 529 plan, which is a tax-advantaged savings plan designed to help pay for education. Like a 401(k), the idea is that an investment over the course of time can help augment your income, especially once your child is preparing for college and you are nearing retirement age.
Purchase Life Insurance and Create a Will
This might seem premature, but the best way to prepare yourself for the unexpected is to protect your ability to support your family. It makes sense to either purchase your own life insurance policy or participate in your employer’s plan, which may be available at no cost to you. In addition, creating a will now is an essential aspect to financially prepare for a baby because you can indicate exactly how your estate should be handled to support your child, such as a trust fund. Additionally, the will allows you to name the guardians for your child. This is a very important item and should be discussed with your preferred guardians.
By following these tips, you can prepare your finances in advance of the baby’s arrival when things are less hectic than say, the day she or he is born. For more information on how PlainsCapital Bank can help you financially prepare for a baby, please visit the Raising a Family section of our website.