You are about to become a parent. Congratulations! Parenthood may be one of the most rewarding experiences you will ever have. There are also a lot of new factors to consider. An Arvest Wealth Management Client Advisor can walk through the planning process with you to help financially prepare for life with a new baby. Here are a few things you should think about.
Reassess your budget
You will have to buy a lot of things before (or soon after) your baby arrives. Buying a new crib, stroller, car seat, and other items you will need could cost you well over $1,000. But if you do your homework, you can save money without sacrificing quality and safety. Discount stores or online retailers may offer some items at lower prices than you will find elsewhere. If you do not mind used items, search for bargains at yard sales and flea markets. Additionally, you will probably get hand-me-downs and shower gifts from family and friends, so some items will be free.
Buying all the gear you need is pretty much a one-time deal, but you will also have many ongoing expenses, which will affect your monthly budget. These may include baby formula and food, diapers, clothing, childcare (day care and/or baby-sitters), medical costs not covered by insurance (such as co-payments for doctor’s visits), and increased housing costs (if you move to accommodate your larger family, for example). Redo your budget to figure out how much your total monthly expenses will increase. If you have never created a budget, now is the time to start. If it looks like the added expenses will strain your budget, you will want to think about ways to cut back on your expenses.
Review your insurance needs
You may incur high medical expenses during the pregnancy and delivery, so check the maternity coverage your health insurance offers. And, of course, you will have another person to insure after the birth. Good medical coverage for your baby is critical, because trips to the pediatrician, prescriptions, and other health-care costs can really add up over time. Fortunately, adding your baby to your employer-sponsored health plan or your own private plan is usually not a problem. Just ask your employer or insurer what you need to do and when—usually within 30 days of birth or adoption—to make sure your baby will be covered from the moment of birth. An employer-sponsored plan (if available) is often the best option for your baby, because these plans typically provide good coverage at a lower cost. However, you should expect additional premiums and out-of-pocket costs, such as co-payments, after adding your baby to any health plan.
It is also time to think about life insurance, which can protect your family’s financial security if something unexpected happens to you. The death benefit can be used to pay off debts (e.g., a mortgage, car loan, credit cards), support your child, and meet other expenses. Some funds could also be set aside for your child’s future education. If you do not have life insurance, now may be a good time to purchase a plan. The cost of an individual policy typically depends on your age, your health, whether you smoke, and other factors. Even if you already have life insurance (through your employer, for example), you should consider buying more now that you have a baby to care for. The type of coverage you choose will depend on your unique family situation, but there are a variety of goals to consider and policies to choose from.
Update your estate plan
With a new baby to think about, you should update your will (or prepare a will, if you have not already) with the help of an attorney. You will need to address what will happen if an unexpected tragedy occurs. Who would be the best person to raise your child if both parents die? If the person you choose accepts this responsibility, you will need to designate him or her in your will as your minor child’s legal guardian. You should also name a contingent guardian in case the primary guardian dies. Guardianship typically involves managing money and other assets you leave your minor child. You may also want to ask your attorney about setting up a trust for your child and naming trustees separate from the suggested guardians.
While working with your attorney, you should also consider completing advance medical directives. These documents allow you to designate someone to act on your behalf for medical and financial decisions if you should become incapacitated. A trust officer can provide expert guidance to develop a comprehensive estate plan.
Start saving for your little one’s education
The price of a college education is high and keeps rising. By the time your baby is college-bound, the annual cost of a good private college could be almost triple what it is today, including tuition, room and board, books, and so on. How will you afford this? Your child may receive financial aid—grants, scholarships, and loans—but you need to plan in case aid is unavailable or insufficient. Set up a college fund to save for your child’s education. You can arrange for funds to be invested in the account(s) you choose. You can also suggest family members contribute directly to this account. Start as soon as possible (it is never too early) and save as much as your budget permits. Many different investment solutions are available for this purpose, some of which have tax advantages, and a client advisor can advise which ones are best for you.
Do not forget about taxes
There is no way around it—having children costs money. However, you may be entitled to some tax breaks, which can help defray the cost of raising your child. You may qualify for one or more child-related tax credits: the child tax credit, the child and dependent care credit (if you have qualifying child-care expenses), and the earned income credit (if your annual income is below a certain level). For more information about tax issues, talk to a tax professional.
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Arvest Wealth Management does not offer tax or legal advice – consult a professional.