March 27, 2024

Having a baby is one of the most exciting and life-changing events you can experience. It is also one of the most expensive. According to a recent study, the average cost of raising a child in the US from birth to age 18 is $233,610, not including college tuition. That’s a lot of money to budget for, especially if you are a new parent or have other financial goals. 

Fortunately, there are some steps you can take to prepare your finances for welcoming a baby and reduce the stress of managing your money. Here are five financial planning tips to help you get started. 

Create a baby budget. Before your baby arrives, it is a good idea to estimate how much you will spend on baby-related expenses, such as diapers, formula, clothes, furniture, toys, childcare, health insurance, and so on. You can use online calculators or apps to help you with this. Then, compare your projected expenses with your current income and savings, and see how much you need to adjust your spending and saving habits. You may need to cut back on some discretionary expenses, such as eating out, entertainment, or travel, or look for ways to increase your income, such as asking for a raise, taking on a side hustle, or selling some unused items. 

Build an emergency fund. Having a baby can bring unexpected costs, such as medical bills, car repairs, or home maintenance. To avoid going into debt or tapping into your retirement savings, you should have an emergency fund that can cover at least three to six months of your essential living expenses. This will give you peace of mind and flexibility in case of an emergency. You can start by setting aside a small amount of money every month in a separate savings account, and gradually increase your contributions as your budget allows. You can also use windfalls, such as tax refunds, bonuses, or gifts, to boost your emergency fund. 

Review your insurance coverage. Having a baby means you have another person to protect and provide for, so you should review your insurance coverage and make sure it meets your family’s needs. You should check your health insurance plan and see what benefits and costs are associated with prenatal care, delivery, and postnatal care. You may need to switch to a different plan or add your baby to your existing plan within a certain time frame after birth. You should also consider getting life insurance and disability insurance, which can help replace your income in case of death or disability. These policies can help ensure your family’s financial security and cover expenses such as mortgage, debt, childcare, and education. 

Save for your child’s education. If you plan to send your child to college, you should start saving as soon as possible. College tuition costs are rising every year, and saving early can help you take advantage of compound interest and reduce the need for student loans. One of the best ways> to save for college is to use a 529 plan, which is a tax-advantaged account that allows you to invest your money in a variety of options and withdraw it tax-free for qualified education expenses. You can also invite your relatives and friends to contribute to your child’s 529 plan as a gift. 

Update your estate plan. Having a baby also means you have to think about what will happen to your assets and your child if you pass away or become incapacitated. You should update your estate plan and make sure you have a will, a trust, or both, that specify how you want your property to be distributed and who you want to be the guardian of your child. You should also update your beneficiary designations on your retirement accounts, insurance policies, and bank accounts, and make sure they align with your estate plan. Additionally, you should create a power of attorney and a health care proxy, which allow you to appoint someone to make financial and medical decisions on your behalf if you are unable to do so. 

Welcoming a baby is a joyous occasion, but it also comes with financial challenges and responsibilities. By following these five financial planning tips, you can prepare your finances for your new arrival and enjoy this special time with your family.  Your team at Omni 360 Advisors is available to help you with your planning needs.