Having a Baby? What Are the Financial Considerations for Your Growing Family?
Whether you are in the planning stages of starting a family or you already have a due date, having a baby will have a substantial impact on your finances. Although some expecting parents astutely prepare their financial house for their newborn, most do not consider all of the ways that a growing family will affect their budget, including income, expenses, and savings.
First Things First. From a budgeting standpoint, it is so important to understand where you stand today, well before your baby’s arrival. If possible, start saving more, increasing your emergency fund to between 3 and 6 months of monthly expenses. The emergency fund is extremely important, as it will help provide security in case of unexpected job changes or increased medical expenses (that are not covered or only partially covered). Building up this account may require you to temporarily pause adding to your retirement account, instead putting that money into liquid assets.
The need for a fat emergency fund is especially relevant if one spouse will stay home for extended unpaid leave to take care of the baby. Even if your family continues to have two incomes after the baby’s birth, daily expenses will no doubt increase (e.g., child care, diapers and clothing, formula, baby food).
In the Short Term. Do you need a larger residence (or new room addition) to make room for the new family addition? Remember, the space needed is not only for a nursery, but storage for clothes, diapers, and of course, toys!
On a related note, can your current vehicle handle an added car seat and the toys/supplies you need to bring the baby to visit the pediatrician and other family members? You don’t necessarily need a full-size SUV (unless your family has already outgrown a sedan), but your old two-door coupe may no longer be practical or reliable transportation.
Even with health insurance coverage and an uncomplicated pregnancy, visits to the pediatrician and related medical expenses will likely increase leading up to and for a couple of years after delivery. This is generally related to prenatal and postpartum care, in addition to the routine infections that babies often develop in early life.
For the Long Term. If you don’t have life insurance, now is the time. If you have life insurance, it’s a must time to review. If you pass away prematurely, will your family have enough to meet current and future expenses? As a rule of thumb, your life insurance amount should be approximately 10 times your annual income. Disability insurance may also provide an increased level of security for your family.
Although it is difficult to plan so far ahead, a child’s education (especially if considering private elementary schooling) can add greatly to monthly expenses. Obviously, paying for a college education looms in the future, and it can never be too early to start thinking about options.
It’s natural to be excited about your upcoming arrival! We at Isakov Financial Group offer our congratulations to you and your family. We want you to be financially secure so that welcoming your baby is a blessed experience, without undue worry about financial complications. Contact us today to review what you need to know about short- and long-term financial preparations for your newest member of the family.