Whether having a first child or the fifth, adding a new member to the family is always a smart time to make sure your financial house is in order. My wife and I are in the process of expecting a baby girl so I’m well acquainted with the list of things that people should be attending to before the hectic environment and sleepless nights that come with a new baby arrive. Here is a list of items to handle before your newborn arrives.
1. Budget Adjustments – The average cost of each child ranges from $10,000 to $34,000 per year. That can easily shake up a household budget and needs to be accounted for. Use tax-advantaged vehicles to your advantage when possible. Health Savings Accounts can be used to buy items like baby formula while a dependent care Flexible Spending Account can pay for daycare services.
2. Set/Adjust your will – It’s an expense but well worth it. Setting up a will ensures that everything for the child/children is set on the financial side should something happen. Choose to assign assets and guardians for children so that things go as smoothly as possible in what would surely be a tough time.
3. Tax Adjustments – Be sure to claim the child on income taxes. Married couples who file taxes jointly can claim a $2,000 credit with income under $400,000. Working parents can use the child care credit for daycare and summer camp expenses for a credit worth up to $1,050 for one child, or $2,100 for two kids or more.
4. Student Loan Payments – Payments on student loans using an income-based repayment, can be adjusted to reflect a new family situation at studentloans.gov or with the loan servicer. This can lower payments by $660 per year.
5. Saving for College – Open a 529 savings plan to start putting money away for the child’s college expenses. The longer savings can grow via investment gains, the less will be required out of pocket.
6. Don’t lose track of long-term goals – It can be easy to forego savings and in order to have money for current expenses. Automate savings where possible be make sure to keep working toward previously stated goals.
7. Check Insurance Coverages – When children are born, add them to the health care policy asap or at least within the first 30 days. Many first time-parents will have foregone life insurance to this point, but explore taking out a term policy to cover expenses for loved ones should something happen. For the young and healthy it will be relatively cheap. Beyond health insurance is disability insurance. Serious disability for a healthy 32 year old is actually 6.5 times more likely than death.
There’s sure to be ups and downs with a newborn to the family, but knock out all of these steps to rest a little easier knowing that you’ve taken some sound financial steps that’ll allow you to focus on the important things in life.
This article was written by Ian Aguilar CFP, MBA, partner of locally owned financial planning firm Mellen Money Management in Nocatee, Florida. For more information, call (904) 580-4696 or email email@example.com.