If you’re expecting a new addition to your family this year, it’s an exciting but also daunting time, especially when it comes to your finances.
“As a new parent, you have an idea that it’s going to be expensive, but there are a lot of unexpected things that come up that you may not plan for,” says Andrea Woroch, a consumer finance expert.
Woroch says parents should think ahead and plan wisely before your baby arrives—here are her 5 do’s and don’ts for new parents.
DO: Ramp up your savings
Woroch says parents will spend about $12,000 during the baby’s first year—on everything from supplies like diapers and formula, to more expensive baby gear like a crib and stroller. Additionally, you need to be prepared to add your baby to your health plan, and pay for possible child care expenses. If you don’t get maternity leave or plan to take time off, you also need to take into account what your income will be once your baby arrives, she says.
“The costs keep growing,” Woroch says. “So it’s really important to look for ways to cut down on current spending and look at bills to trim or get rid of,” she says. Saving more before your child arrives will give you “the peace of mind that you’re financially secure.”
DON’T: Overspend on baby gear
Woroch says it’s tempting to want the newest and best baby gear for your child, but resist the urge to overspend.
“Don’t fall into the trap of buying too much stuff,” she says. “A baby needs the basics—you need a car seat, a crib, perhaps a stroller, and diapers and clothing.” In addition to being gifted these items by generous friends and family, Woroch says you can often ask other parents to borrow gear their children have grown out of and no longer use. She also recommends using Facebook marketplace to search for discounted baby items.
DO: Research affordable childcare
Childcare is a huge expense for parents—according to the Economic Policy Institute, the average cost of childcare ranges from $4,000 to $22,600 per year, depending on where you live and the age of your child. If you’re going back to work and don’t have family in the area, Woroch says you need to look at the hourly rates for childcare services to see what you can realistically afford.
Additionally, don’t forget about nights and weekends when you might want a night out or have plans.
“It’s important to give yourself a little wiggle room in your budget or consider a babysitting exchange with other parents to save money and help each other out,” she says.
DON’T: Neglect life insurance
It might seem bleak, but Woroch says it’s important to think about getting or updating a life insurance policy.
“Parents don’t want to think about death when they’re bringing a new life into the world, but this is the exact time that you need to plan for the unexpected,” she says. “A life insurance policy is the most important thing that you can do to keep your family financially secure.”
Life insurance plans get more expensive as you get older, so planning ahead can save you money in the long run. Woroch says a rule of thumb is to find a plan that offers coverage at 6-8 times your gross annual salary.
DO: Save for college
Woroch says with the rising costs of college, you need to start saving for your child’s future education from day one.
“The longer you wait, the more money you’re going to have to put away, and the less that money is going to gain interest in a savings or investment account,” she says. Custodial accounts and 529 plans are investment accounts that grow interest and compound over time. “This will help you reach your goals faster—it’s so important for parents to get started right away,” she says.
While it’s overwhelming to prepare for all of these changes and unknowns, Woroch recommends taking it one step at a time.
“Figure out all your different options—even if you don’t start saving right away or don’t get that life insurance plan doesn’t mean you can’t do it tomorrow, or next week, or next month,” she says. “Just make sure it’s on your to-do list and you’ll get it done.”
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