There’s really nothing scarier than coming home from the hospital — or the adoption agency! — with a new little human being to take care of. Until now, you’ve only been responsible for your own life. Now, you’re responsible for the life of someone else – someone you love more than life itself.
And while new parents’ minds are whirling with what-ifs and possibilities, there are many what-ifs that revolve around money. After all, a new child brings with him or her the possibility of all sorts of money questions, issues and problems.
But just sorting through your financial questions can help you form a plan and feel more settled as a new parent. So if you’re about to have or adopt a baby — or if you’ve just become a parent — ask yourself these money questions.
1. How Do We Save More Money?
The USDA estimates that it will cost somewhere around $250,000 to raise a baby from birth to 18 in today’s world. But it really doesn’t have to cost that much to raise a child.
Sure, you can choose to spend money on all the extras, but they aren’t necessary. So if you’re strapped for cash, look for ways to save. Some ideas include:
- Buy less baby stuff. Many of the products on the market today are simply unnecessary.
- Go for double duty items — especially for larger purchases. For instance, buy just a pack n’ play instead of both a pack n’ play and a crib.
- Buy used. Most baby items — especially clothes — can be bought lightly used for a fraction of the cost. As long as you check for safety hazards and product recalls, you can safely buy just about anything (besides a car seat!) on Craigslist or eBay.
- DIY it. From decorating the nursery to making baby food, doing things yourself instead of paying someone else to do them will save you a fortune.
2. What Updates Do We Need to Make for Our Taxes?
While a big tax return check seems like a good thing, that check at the end of the year just means that you’ve given Uncle Sam an interest-free loan all year.
So it’s important to come out as close to $0 as possible when it comes to your taxes. And when you have a child, you get extra dependent exemptions. Be sure you take them.
Also, if you’re planning to pay for child care, check out your tax-saving options. See if your employer offers a Flexible Spending Account, which lets you pay for child care with pre-tax income. If not, keep your receipts and file for the child-care tax deduction at the end of the year.
3. What About Life Insurance?
Life insurance is absolutely crucial for new parents. While you don’t want to think about possible tragedies, you do want to provide for your child in case something should happen to you.
Life insurance amounts are usually calculated using your income. Something like 5X or 10X your current annual income is pretty standard. But even stay-at-home parents — who have no income but provide lots of otherwise-expensive services (child care, cleaning, etc.) to the family — need life insurance.
So if you don’t have life insurance, get it now. If you do, be sure to update your amounts and beneficiaries accordingly.
4. Can We Survive on One Income?
Many families choose to have one parent stay at home with the new baby — at least for the first year or two. And if this is the best option for your family, you’ll do well to practice living on one income ahead of time. Learn to cut expenses, save more, and leverage your resources to stick to a single income, if you want to stay home with the little one.
If you don’t prefer to stay home — or simply can’t survive on a single income for more than a few weeks — then take time to carefully consider your child care options. There are plenty of ways to make child care more affordable — from choosing cheaper home-based or ministry-based licensed daycares to choosing a flexible-schedule job that requires you to use less child care.
5. How Will We Save for College?
First, you should be saving for retirement before you save for college. Your child can take out student loans for school, if necessary. You can’t, however, take out loans for retirement. And you don’t want your child to get stuck with your retirement care costs down the road, either.
If you are already saving adequately for retirement, though, take time to research future college costs for your child. Decide what percentage of college you’ll ideally cover. (Most parents don’t cover — or even need to cover — 100% because of grants and scholarships.) Then, come up with a plan to gradually save for college.
6. Where Do We Need to Cut Back?
You may find that even with adequate planning and a decent budget, you have trouble making ends meet when you have a baby. If that’s the case, look for other places to cut back.
Instead of a date night to dinner and a movie, for instance, rent a Redbox flick and fix a romantic post-bedtime dinner at home. Or consider downgrading your car, cutting back on shopping trips, or cooking more from scratch.
Downsizing your budget to cover the costs of a new life isn’t always easy. But it’s definitely worth the effort.
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