New Parents’ Guide to Finances
Are you a proud new parent? It’s a joyous time for you and your family. But with a baby comes unexpected costs. Sure, you knew about all the diaper changing. But do you know that disposable diapers and wipes will cost you over $1,000 by the time your baby celebrates their first birthday? Formula will total nearly $1,300 in your baby’s first year. Now that you’ve outfitted the nursery and your baby is home from the hospital, it’s time to address your family’s finances. With careful planning and monetary discipline, you will be able to afford all the extra costs associated with your growing family – and even save money. Here’s how.
ELIMINATE UNNECESSARY EXPENDITURES
Take a hard look at the extras you could live without. Do you splurge on coffee every morning and eat out a few times a week? Instead, start brewing your own java and commit to more home cooking. Although the daily savings seem insignificant, within a few months you will pocket hundreds of dollars. And before you purchase anything – groceries, drugstore items, clothing, toys, books – search online for the lowest price and coupons. Deal hunting and sharing has become a mini-industry online. For the few minutes it takes you to peruse the Internet for savings, you can score dramatic discounts on your everyday purchases.
CREATE A JUST-IN-CASE FUND
Most financial advisors recommend that you open an interest-bearing account that holds enough money to cover three to six months of living expenses. And only use that money in an emergency. Don’t have a card for the account. That way you’ll be less tempted to dip into the fund for non-emergency expenditures like a lavish vacation or those high-end electronics you’ve been pining for. Even if you never lose your job and are fully insured for every home and car you own, it’s essential that you have a just-in-case fund for unforeseen events.
USE PRETAX DOLLARS TO OFFSET CHILDCARE COSTS
Most employers offer a flexible spending account (FSA) to help employees pay for dependent care costs. During an open enrollment period – typically in December – you determine how much money you would like your company to deduct from each of your coming year’s paychecks. Check with your employer regarding minimum and maximum contribution amounts. Your pretax dollars are placed in an account and they must be used by an annual deadline or else the unused balance is given back to your employer. Because your contribution is pretax, you may realize a savings of up to 40 percent on each dollar, plus you’re reducing your taxable income. Use your FSA to reimburse childcare costs including au pair, nanny, babysitter, before- and after-school care, and day camps.
MAKE ADJUSTMENTS TO YOUR INSURANCE POLICIES
A new baby means it’s time to make changes to your insurance policies. Is your health, dental, home and car coverage adequate? Update your beneficiary designations on existing plans. If you don’t have disability and life insurance, now is the time to ensure that your family will have no financial hardship in the event of a tragedy. Meet with a trusted insurance broker to determine the best policy for you based on your age, health, past medical conditions, habits and budget. Term life insurance covers you for a period of time and premiums are inexpensive. Consider the more costly permanent life insurance if you want investment and loan options.
THINK RETIREMENT RIGHT AFTER BABY
No financial portfolio is complete without a 401(k). Even as a new parent, you will realize immediate tax breaks. Because you are contributing pretax dollars, you save money that otherwise would go toward taxes. And you reduce your taxable income. Even better, many employers will match your contributions. Choose to invest your monies in a mix of mutual funds, stocks, bonds and cash that will grow tax-deferred until age 59 ½, when you can begin withdrawing from your account without penalty. Hardship withdrawals and loans are usually allowed before you reach 59 ½, but there may be financial penalties – check with your plan administrator.
How are you meeting your current baby-related expenses, saving money and planning for your future?
Guest post contributed by mom of two and freelance writer Claire Hodge on behalf of Life Insurance Quotes.