From researching car seats to decorating a nursery, there’s a lot to do when you’re expecting a new baby. In addition to preparing your physical house for your new bundle of joy, you’ll also want to be sure your financial house is in order.
“I can’t think of a more important time to start thinking about your finances,” says Erica Sandberg, author of Expecting Money: The Essential Financial Plan for New and Growing Families.
Building in smart financial planning now will ensure you’re prepared for the changes that come with having a child. Sandberg offered five financial tips that expectant parents should prioritize before their newborn arrives.
1. Create, Review and Update Your Budget
Perhaps you were living comfortably on one or two incomes without a child. Having a baby brings additional expenses — not to mention potential changes to your income. “When you’re in the midst of it and you’re trying to make ends meet and you probably haven’t slept a lot — that’s the worst time to start thinking about your budget,” Sandberg says.
Review your financials to get a clear picture of how much you earn, how much you spend and how much you save. With an updated budget you’ll be able to make informed decisions as new parents. These decisions include things like how much leave you can take, how much you can spend on childcare, and whether you can afford to reduce your work schedule. Take advantage of online budget tools to help you set up a monthly budget and track your expenses.
2. Prepare (and budget) for Your Parental Leave
Caring for your newborn comes with the potential cost of taking unpaid leave. In fact, only 17 percent of Americans working in the private sector have the option of taking paid family leave through their employer. “You want to think about whether you or your partner—or both—are going to take time off work, and how that’s going to impact your income,” Sandberg says.
Investigate if your employer offers paid parental leave. If you plan to take unpaid leave, review your budget to see what timeline makes sense for you to live on a smaller income. Then start saving for those paycheck-free weeks or months ahead.
3. Evaluate Childcare Costs
You’ll likely need a childcare solution, so you’ll want to explore your options. While the cost of care varies by region and type of care (a daycare center versus a nanny or in-home help), a 2019 study commissioned by Child Care Aware of America shows full-time care for an infant can exceed as much as $20,000 a year. Evaluate how much you can afford to spend, research what’s available in your area and consider creative ways to save. Sharing a babysitter with one or two other families can greatly reduce the expense and, as an added bonus, gives your baby some instant buddies, Sandberg notes.
4. Invest in Life Insurance
“Now is the time…to start thinking about life insurance,” Sandberg says. Should something happen to you or your partner, life insurance can help prevent further financial ruin. Life insurance can protect your family and provide for your child’s immediate and future needs. How much life insurance your family needs depends on a variety of factors including your current income and housing costs.
5. Create a Will
A will is often thought of as a way to distribute assets, but your will also designates who has guardianship of your child in the event you and your partner pass away. Creating a will doesn’t need to be complicated, Sandberg says. There are many inexpensive online services and templates or store-bought documents to name a guardian. But, creating a will is imperative: If you don’t choose someone, the court will choose a guardian for your child—and it may not reflect your wishes.
The months before baby arrives can feel like a whirlwind of activity. Remember to take the time to financially prepare for the cost of a newborn. Taking these steps can provide peace of mind during this busy and exciting time and allow you to focus on your family after your baby’s arrival.