In an ideal world, the only thing to consider before deciding to have children would be whether or not you want children. The reality is much more complicated. There’s no denying that children are expensive — and, for many of us, the amount of children we have (or in some cases, whether we have them at all) is shaped by financial considerations. And even if you do decide that you're ready to become a mother, there are definitely some financial moves you want to make first. It may seem daunting or confusing — strap in for a lot of jargon — but the truth is, just a little financial planning can make your life a lot easier.
The first thing to think about is a general maternity fund to help you cope with the loss of work — consider your maternity leave, if you have it, and how much you’ll need to save to make up the difference. “Not everyone is offered maternity leave, and even if you are, it may not be enough to cover your expenses for how long you'd like to be home with your newborn,” Priya Malani, co-founder of Stash Wealth tells Brides. “Ideally, once you decide you're ready to have kids, begin automating money into an online savings account nicknamed ‘Baby Fund’ or ‘Maternity Leave.’ Figure out how much you'll need to cover the loss of your income the months you aren't being paid for and work to save up that amount before the baby is born.”
That should help get you through until you return to work but, in addition to a general maternity fund, there are some other financial moves you should consider making. Here’s what you need to know.
Open a 529 Account
There’s no denying that college is expensive — very expensive, in fact. But you can actually benefit from certain tax incentives if you save for your child early. “If you want to help pay for all or even part of your child's college, the earlier you start the easier this will be!” Malani says. “Again, automation is your best friend. 529 plans are a type of account in which you can save for educational expenses that you will incur down the road.” If you eventually spend the money on education, then what grows is tax-free.
Even better, you can start this account before the baby is even born and add their Social Security number in later. The earlier you start, the more the money adds up.
Review Your Insurance And Life Insurance
If you haven't thought about life insurance before, now’s the time. “Your baby will obviously be dependent on your income(s),” Malani says. “Make sure you have enough coverage that in the event something happened to anyone who provides financial support to the baby, it can cover the cost of those expenses until the baby is an adult or financially independent.”
Another savvy financial move that you can do even before you get pregnant is to reassess your medical benefits and insurance. Pregnancy, birth, and postpartum care can bring a lot of medical costs, so make sure that your plan can handle it. “If you rarely go to the doctor, you might have chosen a low premium/high deductible plan. But that may not work so well while you’re pregnant, so revisit your options. Make sure your health insurance coverage is right for your growing family. You may even want to call your provider to go over what is and isn’t covered.” It’s definitely something to clear up sooner rather than later.
Do Some Estate Planning
This might not be the most glamorous part of planning for a new baby, but some basic estate planning can make a huge difference and help you feel more secure. And the good news is, it doesn't’ have to be complicated. “Make sure to create a will which includes details around guardianship (should something happen to you), inheritance (if any) and your own medical electives should you ever become incapacitated,” Malani says. “It’s definitely not fun to think about this kind of stuff but it’s the cornerstone of #adulting if you’re planning to bring a baby into the picture.
Also, make sure you update your beneficiaries on your retirement accounts. You'll likely want to add your child as either a primary or contingent beneficiary.” It sounds really complicated, but a few forms and signatures can take care of everything.
Re-Budget For Increased Spending
Finally, if you work with a budget — and you should — it’s wise to re-budget to include your baby spending. “Babies are not cheap,” Malani says.”Whether it's diapers, baby food, extra doctors visits, or all those cute baby clothes, the cost of having a baby definitely adds extra expenses to your life. That said, we often see with our clients that some areas of their spending naturally come down. Most clients aren't traveling the way they did before the baby. They also aren't dining out as much. This can help absorb some of the increased baby costs in the first year or two.
That said, take some time to address any areas of your life where you can lower your costs...having financial stress while also focusing on your new baby is the opposite of what any of us wants.” There will definitely be some ebb and flow in your budget as your lifestyle changes, but you want to be prepared.
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Phew. It may seem like a lot of work — and a little scary — but the truth is, these financial moves will make your life a lot easier. Try not to be intimidated, because it's a lot more straightforward than you think — and can make a huge difference.