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How to Financially Prepare for a Baby


"Prepare for arrival" takes on a whole new meaning when it's baby's arrival. Planning for a baby financially can ease the transition to parenthood and help you more fully enjoy the priceless experience of raising your child.

Check out these best practices for financial planning when you have a little one on the way.

Pay Down Debt

You might already be in the process of paying off debt, but preparing for a baby can help amplify your approach.

To start, think about which debts you could feasibly tackle. Although you might not be able to pay down your mortgage by baby's arrival, could you pay off your car or another small debt?

If you have high-interest debt from a personal loan or credit cards, you may want to consider debt consolidation. If you consolidate through a new loan, choosing one with a shorter term (if you can comfortably continue to make payments) may even help you pay off the loan faster.

Also, try to avoid unnecessary purchases, especially if they would require piling on more debt. It takes a bit of willpower, but you'll be glad you did it.

Bear in mind that when baby comes, your regular expenses may shift. For example, you might not be going out as much, which could save you money. Or you might decide to temporarily cancel your gym membership as you spend more time at home bonding with your child. Look at your monthly expenses to get an idea of which costs you might be able to eliminate or at least scale back. You can even download an app that tracks your money to help you budget consistently and identify unused subscriptions.

Build Your Savings

Easier said than done, building up your savings before you take parental leave can better equip you to meet your new financial responsibilities.

If you have the means, opening a high-yield savings account and contributing to it monthly could help you build more savings more quickly. With this kind of account, you can earn a higher yield on your deposits, as compared to what you would earn with a traditional savings account. A possible catch is that some high-yield savings accounts may have monthly maintenance fees and minimum balance requirements. So just make sure you understand what you're signing up for before opening an account.

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Emergency Fund

Now is also an ideal time to either start or bump up contributions to your emergency fund. Best kept separately from your other savings accounts, your emergency fund is what you can turn to for literal emergencies such as loss of a job or unexpected medical or home-repair bills. As a rule of thumb, aim to save at least three to six months' worth of living expenses.

Save For Parental Leave

If your employer offers paid leave, but not for your full salary, consider budgeting for the cut by putting a percentage of your paycheck into savings for at least three months prior to your leave. That cushion could help keep you from racking up debt on your credit cards during your leave.

If you'll be going from two incomes to one after baby's arrival, you may want to save for at least six months' worth of expenses before you give your notice.

Do you know if your employer offers paid parental leave? Not all of them do, so make sure to brush up on your employer's policy so you can plan accordingly. Keep in mind that the Family and Medical Leave Act (FMLA) provides eligible employees with up to 12 weeks of unpaid, job-protected leave each year.

Map Out Your Baby Budget

Did the good news that you're expecting immediately trigger the urge to go out and buy everything baby? Before you start spending, take a pause and make a plan.

To help make preparing for a baby more manageable, focus on costs you'll need to cover first:

  • Diapers, wipes, clothing
  • Formula and bottles
  • Baby/personal care
  • Bath necessities/toys
  • Crib and bedding
  • Stroller and car seat

You can use a baby-costs calculator to figure out the math.

Keeping an open mind can help too, as there will always be times when you have to learn as you go. In fact, viewing your budget as a work in progress may motivate you to keep refining it, even after baby arrives.

Be Practical About Your Registry

Creating your baby registry is definitely an opportunity to ask for wish-list items, but including practical items, such as diapers, bibs, and pacifiers, can help you save on everyday essentials.

Don't Forget Childcare

Planning for a baby financially may require accounting for childcare. According to Indeed, the current average pay for a babysitter in the United States is $18.39 per hour.

Whether you prefer taking your child to an on-site facility or hiring a nanny or babysitter for part-time or full-day care will depend on your personal preference, work schedule, and financial situation.

But don't forget that family and friends are often happy to help when they can. If available to you, this option will most likely cost less, if anything at all, with the added benefit of giving your child more quality time with loved ones.

Review Your Insurance

You'll thank yourself for setting aside time — while you have it — to make sure your insurance will meet your family's needs. You may want to review or consider adding policies for these types of insurance:

  • Medical
  • Dental
  • Life
  • Disability

This would also be a convenient time to add your child as a beneficiary to your life insurance policy.

Plan for the Long Term

Your kids' expenses will be a long-time priority — the earlier you can get a jump start on saving for their future, the better. The same sooner-rather-than-later concept applies to taking care of your own future too, for your sake and theirs.

Get Ready for School

Sending your little one off to college may seem like a lifetime away, but starting an education fund for your child early on is a smart step.

Not sure where to start? You may want to consider investing in a 529 plan for your child. A 529 plan is a tax-advantaged account that can be used for education expenses. Plus, family and friends can contribute to your child's 529 plan. Not only does that make for an easy gift idea for birthdays and holidays, but it's also an opportunity for relatives and friends to contribute to one of the most valuable gifts: your child's education. 

Writing Your Will

Understandably, many people would rather put off writing their will. But squaring it away early may help you breathe easier, since a will outlines how your assets will be distributed and who you will designate as your child's legal guardian if you die before they reach adulthood. It's just one more way to set your kids up for success. Depending on your preference and finances, you can write your own will or seek guidance from an attorney or planning services. Trustworthy online software can also help you consider legalities as you plan your estate.

Financially preparing for your baby is truly a win-win — you'll feel more secure in your own finances and your child will be set up for success from day one. Whether you have eight months to go or three, taking even just a few of these steps will have you on the right track so you can spend even more time with your new bundle of joy.

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