It’s an exciting time in anyone’s life: your family is growing and you’ll soon be welcoming a little one into the world.
And it can be a financially stressful time, too. Babies are bundles of joy to their new parents, but it’s a well-known fact that raising children costs money.
The best way to handle the changing finances of a growing family? Take these four financial planning steps before having a baby.
1. Start Saving Now
While becoming a new parent is exciting and an honor for many, it also means increased responsibility. You need to take your role as a provider seriously.
Before having a baby, you need to shore up your cash reserves. Everyone should have some sort of emergency fund, but this back-up cash savings is even more crucial for parents-to-be. Having a baby is a major life change and while you may feel financially ready, unexpected expenses crop up all the time. You’ll be better equipped to handle these with a sizeable emergency fund.
You should aim to have three to six months’ worth of expenses saved in your fund. If your family will be living off one income once your baby arrives or if you’re self-employed, consider boosting this amount to about twelve months’ worth of living costs.
Feel like you can’t save much? Yes, these are large amounts of money to put away. But that’s okay — every little bit helps. Start small and work your way up. It’s more important that you start saving now, even if you’re saving just a little each month.
2. Build Better Money Management Habits
If you’re not already in the habit of tracking your spending and maintaining a budget, put these systems into place before baby arrives. Life gets stressful with a newborn in the home and your priorities will obviously be on your child.
Make things a bit easier on you and your family by establishing smart money management habits ahead of time. Take these steps today:
1) Create a budget. A simple way to divide up the categories is to list out fixed expenses first (like your mortgage or rent payment and other bills that recur every month), then your savings contributions, your flexible expenses (like groceries and gas; things you have to buy but the amount you spend can vary), and finally your discretionary spending or “fun money” (think dining out and shopping).
2) Reduce expenses and spending where you can to ensure you’re living within your means — in other words, make sure you’re not spending more than you earn.
3) Make saving automatic. Pay yourself first by setting up an automatic transfer from your checking account to your savings account so you don’t have the opportunity to spend the money earmarked for financial goals and your future.
3. Get the Protection You and Your Family Need
New parents experience major life changes when their babies are born. If you’re expecting, be proactive and protect your family with the appropriate insurance for those life changes.
Make sure you have the right health insurance. If you receive coverage via a plan with your employer, review what your plan offers. You may need to make changes based on your changing life situation. And if you don’t have health insurance at all, you must act now to find a suitable plan for your family.
You may feel like you don’t need life insurance on top of your health insurance — and this might have been true before you had someone relying on you completely for their care. Life insurance will provide for your children in the event you are no longer able to. You may also want to consider disability insurance for this same reason.
If you need help determining how much life insurance you need, grab the iQuantifi app. Life insurance is a complicated topic, and your coverage needs will depend on your specific, unique situation. iQuantifi can look at your variables for you and suggest the amount of insurance you’ll likely need.
4. Plan Ahead for the Benefit of Your Growing Family
No one likes discussing worst-case scenarios. Although it may seem morbid, you need to think about wills and estate planning before having a baby.
If you feel too uncomfortable with this topic and are tempted to skip over it, consider the fact that by planning ahead now you’re protecting your children and your family for the future. Without a will or estate plan in place, if anything were to happen to you a court would decide who would raise your children and what would happen to your assets.
You know what’s best for your loved ones, so make sure your desires are carried out by putting important end-of-life planning documents into place.
As exciting as this new time of your life is, it’s important that you take a moment to consider the practical and financial implications of having a baby on the way. And while the financial aspects of your growing family may overwhelm you, don’t feel that you can’t handle these wonderful changes.
Rarely do we feel 100% prepared for the big life goals we want to accomplish. You can meet major milestones like having a baby. You simply need to take these financial planning steps now.
It may feel tedious and even a little stressful now, but you’ll be grateful you made the effort today once your little one is here safe and sound — and financially secure.
By Kali Hawlk, Staff Writer