Whether you’re pregnant, a new parent, or simply considering starting a family, there’s much to consider when planning for the arrival of a new baby. It’s no secret that kids are expensive, but with a little planning, you can feel confident and prepared for this big adventure! We’ve identified a few considerations below, broken out in steps to take before and after the birth of your child.
Before the Baby Arrives:
- Review your Maternity and Paternity Leave Policies. It’s important to understand what your employer offers in terms of leave. Will your time be paid, unpaid, or a combination of both? Do you have employer provided short-term disability coverage that will take effect? Is your company large enough to be subject to the requirements of the Family Medical Leave Act (FMLA)? How do your benefits compare to the desired amount of leave you’d like to take? If there’s a gap, in either income or time, it’s important to plan ahead for meeting your family’s financial obligations.
- Review your Health Insurance Coverage. If you’ve been on a High Deductible Health Plan, you might consider switching to a PPO or HMO during open enrollment for the anticipated year of birth. Most insurance companies will provide tools that help you estimate the cost of birth under different plans. Your insurance provider may also cover the cost of a breast pump – be sure to obtain a prescription from your doctor in advance.
- Make a Post-Baby Budget. This is critical in planning for short-term income changes during maternity and paternity leave and longer term increases in expenses due to childcare. Will you look to hire a nanny or opt for daycare? Will family be providing any support? Childcare can be a significant expense; we’d recommend reaching out to facilities in the area for rates to help estimate this expense. Don’t forget to incorporate increased premiums once you add your child to your health insurance policy!
- Build an Emergency Fund. Try to set aside at least six months’ worth of expenses. You never know when an emergency will arise that requires immediate funding. The last thing you’d want is for a financially stressful situation to arise during an otherwise joyful moment in time!
- Apply for Life Insurance. While life insurance may not have been critical in the past, it is now! In the event of your premature passing, you’ll want your spouse and child to be able to maintain their standard of living. We recommend obtaining enough coverage to replace your earnings, pay off your mortgage and fund your child’s education. Term life insurance is an affordable option that provides coverage for a period of years; we typically recommend 20 or 30 years to get your children through college.
After your Bundle of Joy is Born:
- Add your Child to your Health Insurance. This is often overlooked, between sleepless nights and swooning over your beautiful new child. Birth is a qualifying event – be sure to call your provider within 30 days of your child’s birth to add them to your health plan!
- Open a 529 plan! College is expensive – let compound interest and tax-free growth on investment earnings work in your favor! The earlier you can begin to save the better. In addition to the federal tax benefits, Pennsylvania residents can receive a state-tax deduction on contributions to a 529 plan.
- Determine whether your employer offers a Dependent Care FSA. If you are opting for paid childcare, you may be able to pay for some or all of your expenses on a tax-free basis. Contributions to a Dependent Care FSA are limited and are use-it-or-lose-it, so you should carefully consider your contribution amount to avoid overfunding.
- Update or Implement Estate Documents. This is a critical task that many people dread, however, executing estate documents is extremely important to ensure your wishes for your child’s care and the distribution of your assets are carried out as intended. Who should serve as your child’s guardian in the event you pass? Is a trust needed to protect assets for your child? We recommend you discuss these considerations with an estate attorney.
- Update your Beneficiary Designations. Should you name your child as contingent beneficiary outright or in trust? We recommend coordinating updates to your retirement account beneficiary designations with the implementation of estate documents.
Inevitably, your “to-do list” will also include things like creating a registry, decorating the nursery, and installing the car seat! We hope these financial considerations help you feel prepared to assume your role as parents. For additional advice and guidance, don’t hesitate to reach out to a Financial Planner at RTD Financial!