Baby on board? You’ll want this money advice.
If you’re expecting a new addition to the fam, we’re sure there’s more keeping you up at night than wondering whether to paint the nursery magenta or mint. Yep, from diapers to future college tuition, it’s no secret that raising a happy and healthy human leaves a dent in your wallet. But, it’s all good. With some proper planning, you can navigate the financial side of parenthood with ease. So if you’re expecting a little one (or your baby has already arrived), read on. We’ll share some practical money advice for new parents looking to babyproof their financial futures.
- Build an emergency fund
- Make a realistic baby budget
- Take advantage of tax breaks
- Get life insurance
- In conclusion
1. Build an emergency fund
As a new parent, always expect the unexpected, especially with one more mouth to feed. With new responsibilities come new expenses—and unforeseen ones at that. Having an emergency fund can help put a buffer between you and any unexpected financial rainy days. If you’re a single-income household, a good rule of thumb is to have six months' worth of basic living costs. Two-income household? Your emergency fund should be equal to three months' worth of expenses. Once you have that strong foundation to fall back on, you and your crew are basically protected against the chaos of everyday life. And ultimately, unexpected bills will no longer hold any power over you.
2. Make a realistic baby budget
We know, we know. No one likes to hold up a mirror to spending habits. But, budgeting is the only way you’ll gain a better understanding of your income and expenses to reach your financial goals. And if you didn’t know how expensive raising a child to age 18 can be, the U.S. Department of Agriculture estimated that cost to be $233,610 in 2015. So, with an annual adjustment of 2.2.% for inflation, that number skyrockets to $272,049 for a child born in 2022. And that’s just for food, shelter, and other necessities—it doesn’t include the cost of college tuition. So yeah, back to that budget… If you’re pregnant, work out how much things cost —doctor appointments, prenatal supplements, maternity outfits, all of it. Then look to the future and work out the cost of day-one baby essentials—things like formula, blankets, clothing, etc. After that, factor in the non-essentials that the baby will need further down the line —like toys, music lessons, and future college tuition. Making a list will help work out what exactly you need to budget for. And remember: budgets aren’t a one-size-fits-all type deal. So don’t be put off if you stray off the plan every once in a while. Just keep adjusting until you find a budget that works for your family.
Annual costs to raise a kid born in 2015
3. Take advantage of tax breaks
Having a baby not only changes your lifestyle it also changes how you file taxes. This is one area where parents truly get a break—so take advantage. The US Child Tax Credit currently stands at $3,600 per child under the age of six. That’s a good chunk of change to add to your savings (or emergency fund, ahem, ahem). Before applying, you’ll need your child’s social security number, so make sure they have one. Plan ahead by bookmarking Form SS-5 to fill out when little one is here. And make sure you have the necessary paperwork handy (medical docs, birth certificate, all that good stuff). There is a caveat to this tax credit, however. If your income reaches $200,000 as a single filer or $400,000 as a married couple filing jointly, the credit starts to phase out. Not sure where you land? Check your eligibility for the Child Tax Credit here. Additionally, from deducting childcare to itemizing medical bills, there are even more ways to get a little extra money back in your wallet. So we highly recommend doing your research.
4. Get life insurance
And finally, the best advice for new parents? Give yourself and your loved ones the gift of financial security. Not only can life insurance cover the immediate cost of your death, but it can also cover things such as your mortgage or future college tuition for your kids. Also, if you’re a stay-at-home parent, you definitely should look into coverage. From childcare to cleaning duties, stay-at-home parents make priceless contributions that should be protected with life cover. So make sure you cover everything that matters most—from your mortgage to future tuition for your kids. And if you already have coverage, adjust it to account for your newest addition. If you’re shopping around for a super-personalized policy, check out our Wysh Builder to work out the exact coverage you need.
Prepping for a baby is so much more than picking out cute outfits and paint colors for the nursery. By following the above advice for new parents, you can potentially protect your fam from most financial hardships. Also, when in doubt, seek out the wisdom of other parents. Your fellow parents will be a good source of info should you need some sage money advice.