Parenthood comes with many joys, but it also comes with many expenses. Here are five financial tips to help you prepare.
1. Create a Budget for Baby-Related Expenses
Prepare for parenthood by creating a budget for baby-related expenses. Consider things like hospital bills, diapers, formula, clothing, childcare, and medical care for starters. Think about all the things you'll need from the crib and bassinet to the car seat and stroller. You might be able to obtain some of the things you need, from a baby shower or other gifts from family and friends. Have a budget in place to cover what you need.
Review your current budget and figure out if you need to cut back on any expenses. Look at the current costs of all the baby essentials. Use budgeting tools and apps if needed.
2. Plan for Parental Leave
If you are taking parental leave from work, you'll need to consider the financial implications of that. If you get paid leave, it’s wonderful. If some or all of your leave will be unpaid, however, you'll need to plan accordingly.
"Parenthood comes with a lot of costs, especially if it starts off with unpaid leave from work," says Emily Cahill at Experian.* "To help financially prepare for a new baby and unpaid parental leave, expectant parents can adjust their budget, shore up their savings, utilize all possible employer and state benefits, and more."
As Cahill notes, it might be worth looking into a part-time return to work, as well. If your employer allows it, you might be able to ease back into work on a part-time basis, so you can still have more time with your new child but still generate income. It's also worth discussing remote work options with your employer.
3. Consider a Life Insurance Plan
When you become a parent, you'll need to consider financial future of your family. If you don't already have a life insurance plan, it may be time to explore your options. A life insurance policy can help financially protect your family in the event that something unexpected happens to you. You can choose from term life insurance and whole life insurance. Term life covers a specific period, such as 20 or 30 years, while whole life lasts a lifetime and builds value over time.
4. Save, Save, Save
One of the best ways to improve your financial situation as a parent is by saving as much money as possible. Build an emergency fund and add to it frequently. Build up your savings as much as possible so that you have the money you need when unexpected expenses arise.
If you can build an emergency fund of three to six months’ worth of living expenses, you'll be off to a great start. It will help greatly if you lose your job or face other significant financial burdens.
"One of the easiest things you can do right away to financially plan for Baby is to start a savings account," says HappiestBaby.com.** "After creating a monthly budget, figure out how much money you can save each month. A prudent goal is to determine how much your monthly cost is that would cover all your bills plus food and other expenses and then multiply that by three or six. Creating a nest egg to replace your income in case you lose your job can give you and your family a soft landing during an otherwise turbulent time. And, if you don’t end up needing it for an emergency, you can use it for other big-ticket expenses (like summer camp)."
5. Start a Savings Account for Your Child
In addition to your own savings account, it’s a good idea to set one up for your child early in their life. This will give you more time to add to it as they grow so that when they're old enough to need it, they'll have a great start financially. You can also use this account for child-related expenses.
Parenthood is expensive. Make no mistake. With proper preparation, however, you can minimize the financial burden and enjoy your growing family without worry.
* https://www.experian.com/blogs/ask-experian/ways-to-plan-for-unpaid-parental-leave/
** https://www.happiestbaby.com/blogs/parents/financially-plan-baby