Wondering how to financially prepare for a baby? What do you do once baby is here? There is a whole slew of articles on the web that go over day to day baby activities. However, today we are going to be focusing on the 5 steps every parent should take to financially secure baby.
It is important to remember that although the below is essential, it is equally important for you to have your financials in order. This means having your own life insurance for yourself and spouse, be contributing to a retirement plan and have a Will in place.
After you have ensured financial responsibility on yourself and/or spouse, now it is time to get your financials in order for baby. Did you know that it is estimated that it costs $250,000 to raise a child?
That’s right. It costs two hundred and fifty THOUSAND dollars to raise a child in today’s world. Makes you reconsider all those times you gave your parents a hard time when you didn’t get what you want, huh?
Yes, raising a child is expensive, but they are worth it. If God was to bless us with another child or two, we would open our arms (and bank accounts) widely and take them right in. That’s why hand me downs were created for anyway, right?!
Well I’m sure you’re wondering how to prepare yourself financially for children. Of course, you are! That’s why you clicked on this post in the first place. So, let’s get into it.
How to Financially Prepare for a Baby
Add Baby to Health Insurance
Once baby has arrived, it is time to get them added to your health insurance. You have just 30 days from your baby’s birthdate to get this completed. Therefore, it is best to take care of it right away.
Talk with your Human Resource department before baby’s arrival and get all documents in order. You will not need to wait until your baby’s social security card arrives to complete their enrollment onto your plan. This information can be provided at a later date.
You really will not want to miss this window. While some insurance companies may accept you on the plan as an exception, there is no guarantee that they will. If you miss the window to get your baby onto the plan, you could find yourself in a headache of a situation.
When an exception is not granted, you could face thousands of dollars’ worth of medical bills. If an exception is granted, then you are faced with dealing with resubmissions and ensuring that all medical bills have been reworked.
Save yourself the headache and make taking care of insurance one of your top priorities. You will be thankful you did.
Set up a College Fund
College is expensive. Do we need to say anything more here?
In all seriousness, it is essential to set up a college fund for your baby. Even if you cannot contribute that much to it right away, every little bit will help. There are also tax benefits that come with opening certain college funds, such as a 529 college plan.
If you haven’t heard, regulations have also changed in regards to financial responsibility for college loans. College students are now capped out on the maximum amount of loans they can take out per year. This means that anything over the maximum will either need to come from scholarships, grants or … you guessed it, loans taken out/paid by you, the parents.
We are huge proponents of accounts that help our money work for us. This means putting money into say a 529 college plan – as mentioned above. A savings account or even a CD isn’t going to earn you much in interest nowadays.
With a college plan, your money is invested in the stock market. You can set it up the way you like. Have your money placed in riskier accounts that potentially earn you higher returns or go the safer route.
If you are not well versed in college plans, then I highly recommend that you speak with a financial advisor. Or even someone you trust that invests and understands how college plans work. Here’s an article from Baby Center that also goes more in depth to college funds.
In any regard, stay ahead of the game by starting a college fund as soon as possible. Eighteen years is going to fly by faster than you think.
Continue to Contribute to Savings Account
If you already have a savings account, excellent! Work hard to continue to contribute to your savings account. You may even want to consider upping the amount you contribute to it each month.
Years sneak up on you with children and before you know it, they are entering high school. You know what high school consists of – school dances, extracurricular activities, class rings and first cars. All things that cost money!
Not to mention unknown accidents that may occur. Things such as broken bones, dental procedures, orthodontia and the list can go on. If you are not contributing to a FSA or HSA account, be sure you are saving for these unknowns elsewhere.
Be better prepared for these expenses by throwing a little more money into your savings account.
Purchase Life Insurance
Nobody wants to think about losing a child; I hate even typing this out. However, the fact is that you should ensure that all family members are covered by life insurance. This means taking a life insurance policy out on your baby.
The first step before purchasing any life insurance policy is to check with your Human Resource department. Some companies actually pay for family life insurance. This means your baby could be covered for free.
If your company does not have a life policy option for your children, don’t fret. There are so many companies out there that offer life insurance policies. You could start by checking with your homeowners or car insurance company.
Set up a Savings Account for your Child
I know, I know. You’re thinking I should up my savings account, start a college plan and contribute to my child’s savings account too?! Hear me out, though.
Children receive money for many things throughout their lifetime. Baptisms, birthdays and holidays come to mind. Set up a savings account for your child to have one central place to place these funds.
Having a savings account will also help your child learn the value of money as they grow older. Maybe you will allow them to use their savings account to buy a special toy or gift for their friend. Or maybe you will choose to keep the account secret until they are 18 and hand it over.
Either way, setting up a separate savings account for your child is an excellent way to save the money your child will receive throughout their years.
If this list seems overwhelming, take each piece one by one. We personally waited about year before starting a college fund for our child. However, after a year we can say that we have been able to tick off each one of these boxes. Remember, it doesn’t have to be much to start with. Just get the ball rolling and start planning to have a better financial outlook for your child.
If you skipped to the bottom, here’s how to financially prepare for a baby.
- Add baby to health insurance
- Set up a college fund
- Continue to contribute to savings account
- Purchase life insurance
- Set up a savings account for your child
Do you have any other recommendations? Let me know in the comments below!