Having your first baby can be exhilarating and terrifying. You will be responsible for a new human life, and many new parents find themselves in a swirl of uncertainty about what kind of parents they will be.
Then, there are all the physical preparations to consider. Do you have a nursery ready? Is everything baby-proofed? Have you selected the perfect stroller, car seat, bottle, changing table, and every other piece of baby paraphernalia?
And perhaps the biggest question of all: Are you prepared financially?
It’s all too easy for financial preparations to fall through the cracks when having a baby. You will guide your child all the way into adulthood, and a huge part of this is making sure your family is financially secure. Financially preparing for a child does not have to be a major source of anxiety. Just follow the checklist below.
A financial checklist for your baby’s birth
1. Open savings accounts
There’s no such thing as opening a college savings account too soon. Contributing early and often will help build money for schooling or to start a professional career on solid financial footing. Also, consider opening a separate flexible savings account for the child. Use this account to save any extra money that is not going toward college savings – it can come in handy for unforeseen child care expenses or as a financial gift to your child as he or she enters adulthood.
2. Add the newborn to your will
If you have a will, you should add your child as a beneficiary. If you don’t have a will, this is the perfect time to have one drawn up. You should also add your child as a beneficiary of your life insurance policy – and if you don’t have a policy already, it’s time to get one.
3. Quote insurance
What if you die before your child reaches adulthood? Will your family be able to manage, financially? A life insurance policy will help guarantee the financial security of your family if you die. Most experts recommend looking for a term life insurance policy that will at least cover the time period necessary for your child to reach adulthood.
4. Quote disability insurance
A debilitating injury can be just as costly to a family as a death. In fact, it can produce even more strain. Medical and rehabilitation costs along with the loss of an income can quickly eat into your savings. You should consider long term disability insurance to help your family in the event that an injury or illness prevents you from earning money for your family.
5. Update your health insurance
Babies require special medical attention. Be sure they’re covered. If you have health insurance, add your child to your policy. To find out what you need to do and what costs are associated, talk to your insurance provider or your HR representative, if your policy is provided through an employer. If you cannot add your child to your policy, it’s time to start shopping for health insurance for the baby.
6. Update your tax documents
You should adjust your W-4 to show that you now have a dependent. This usually results in a significant decrease in the taxes taken out of your paycheck.
In some instances, you may claim your child for the entire calendar year even if it is not born until late in the year. This would result in extra savings. If you have any questions about this, you should consult with a tax professional.
7. Create a new budget
Before having children, you may have been accustomed to living more freely. Sure, you had a budget and were still putting money into retirement and savings, but there was still enough left over to allow you to have fun. As you’ve probably already heard, things change when you have children. This includes your budget. Where you once only had to budget for two people, there are now three. Also, you will have to do this with the same income you had before (babies are notorious freeloaders), or – even more daunting – with less income, if one parent decides to stay at home with the child.
You must become much more careful with your budget. Plan your expenses well in advance. Check with the experts to make sure your plan is feasible. Make sure you are accounting for the money you would like to put into savings. Your life will be much less stressful when you create and stick to a budget.
Most importantly, get ready for your life to change forever. Prepare to experience the joy, wonder, and even bittersweetness of watching your child grow into an adult. Enjoy every minute assured that your child will always be provided for.