Financial Considerations for New Parents

When you decide to add a child to your family, you must be prepared for change in nearly every aspect of your life. These changes can be overwhelming, but there is an important one that shouldn’t get lost in the never-ending to-do lists – your finances.

Preparation can help you avoid financial headaches and allow you to focus on the joys of becoming a new parent. Consider the following actions to shore up your financial plan and ease your transition into parenthood.

Understand Your Insurance Coverage

When preparing for the arrival of your little one, you will need to take a close look at your health insurance policy. There are three main types of coverage you should understand – prenatal, birth, and coverage for your new child.

For prenatal care, most health insurance plans cover some preventative screenings and checkups without an out-of-pocket cost. Your plan could also offer help with the cost of supplements, counseling to help prepare you for parenthood, and additional genetic testing. However, some plans require you to cover a portion of the cost for these additional services.

Insurance also typically assists with the birth of your child. The total price tag of a birth is about $15,000, but women with group health insurance usually pay about $2,700 out-of-pocket. Insurance certainly helps reduce the cost of a birth, but the expense may still require advance preparation.

Procedures differ regarding the timeframe in which you should add your baby to your health insurance policy after birth, so check with your individual policy for instructions. This coverage is vital to reducing the cost of checkups and any additional healthcare your child may need.

Plan For Short-Term Disability and Parental Leave

You’ll also need to consider how to protect your job and financial health while taking time away from work to bond with your new child. If you’re one of the fortunate 27% of private sector workers who are eligible for paid parental leave through their employer, you can count on these benefits to replace your income while you are away from your job.

If your company doesn’t offer paid parental leave, you may still be eligible for financial assistance from a short-term disability policy that you purchased through your employer or independently. These plans typically cover pregnancy when offered through an employer and may provide a financial cushion after the birth of your child. However, short-term disability policies rarely replace your full salary. Instead, they commonly pay between 40 and 70% of your usual income.

Finally, the Family and Medical Leave Act [FMLA] allows you to take up to 12 weeks off work to bond with your child if you work for a covered employer. This type of leave guarantees that you will not lose your job due to covered circumstances, but it does not provide financial assistance or replace your salary.

Budget For Upfront and Recurring Costs

Upfront costs for a new baby are typically around $3,000 including essentials like furniture, a car seat, and a stroller. Loved ones often help with these costs through baby showers and gifts, though you will likely need to budget for some initial costs as well.

After the essentials are purchased, you’ll need to consider the ongoing costs of childrearing. The most substantial of these is childcare which costs between $6,000 and $19,000 per year. Other costs including formula, diapers, and clothing for a quickly growing baby can also add a substantial amount to your monthly expenses.

Fortunately, there are numerous tax breaks available which can help to reduce the financial burden of parenthood. You will likely need to update your tax withholding status with your employer and work with an experienced tax advisor to claim the deductions that apply to you.

Update Your Estate Plan After Baby Is Born

An estate plan is essential at every stage of life but becomes even more important after the birth of a child. Your plan outlines who should receive your assets after your passing and establishes guardianship for your children.

After the birth of your child, contact your attorney to update your Last Will and Testament. Be sure to carefully consider who should raise your children if you are unable to do so and ensure that this information is listed in your will. Additionally, consider how your child would be financially supported if you are no longer here, and update your will and beneficiary designations accordingly.

Start Saving for Your Baby’s Future, But Don’t Give Up on Your Goals

Finally, it is wise to begin planning for your child’s financial future as early as possible. Early preparation provides an opportunity for investments to work and can result in a higher balance over time.

Consider asking for monetary gifts rather than physical ones on holidays to boost your own contributions to your child’s future. There are many types of accounts you can use to invest these gifts and your own money. College savings plans, like 529s, can be an excellent way to save for future educational costs and some states offer tax advantages for contributions. If you own a business, you can consider hiring your child and establishing a Roth IRA for them. Further, you can consider savings accounts, UTMAs, and ibonds for savings that are not earmarked for a specific purpose.

While saving for your child’s future is important, it shouldn’t overshadow your own financial goals. Ensure that you still maintain a healthy emergency fund and make progress toward your retirement goals. An experienced financial advisor can provide pivotal assistance balancing saving for your own needs and your child’s.

Get Help Preparing Your Finances for a New Baby with Brookstone

At Brookstone Wealth Management, we help clients adapt to all of life’s major milestones, including the transition to parenthood. Our dedicated team can help you update your budget, your financial plan, and your monthly savings.

We bring together the most important pieces of your financial puzzle in one easy-to-understand plan called Financial Fingerprint®. Best of all, this plan is backed by our experienced team, so you always have support during life’s most challenging transitions.

To learn more about Financial Fingerprint® and get started today, contact us.