Getting ready for the birth of your child, especially your first, is as busy a time as it is exciting. There’s so much to consider and so much to get done, including being prepared for the additional expense. While there’s no way around the costs associated with a new family member, there are things you can do to more efficiently manage the expenses and to be sure the money will be there when, and if, you need it.
- Update your health insurance coverage. Typically you can only make changes to your coverage during an open enrollment period at the end of a year. But that restriction doesn’t apply if you’re adding a new family member; you can take the occasion to change your coverage or even change to a new plan. Just be sure to add your child and make any other changes within 30 days of birth. By adding your child to your plan within the 30 days, he or she is covered from the date of birth.
- Open a Health Savings Account (HSA). An HSA allows you to contribute pre-tax dollars to a savings account you can use to cover costs that aren’t covered by your health insurance plan, including your out-of-of pocket deductible. Of course, there will be doctor’s visits and other medical charges for your new baby, but HSA funds can also be used to cover such things as baby formula and sunscreen. As well, legislation addressing COVID-19 extends use of HSA funds to over-the-counter, non-prescription drugs and other health-related products.
- Take out term and disability insurance. Insurance becomes a lot more important with the arrival of a child. You want to be sure your expanded family will have the money to take care of themselves if something were to happen to you. You can lock in a considerable amount of term life insurance at a low cost. Should something happen to you that prevented you from working, disability insurance will not only supplement your lost income but provide funds to cover what will likely be increased medical and living costs.
- Create, or update, a will or trust. A will or trust will allow you to include your new child as a beneficiary and to name a custodian, so that if something were to happen to you, or to both you and your spouse, someone will be designated to ensure your assets go to your child in the most efficient manner—from a tax as well as legal perspective.
- Create a budget. Your new child is going to change your spending habits—permanently. A budget is a great planning tool and especially useful to an expanding family. Consider not only day-to-day expenses like food and clothing, but the cost of childcare, which can be expensive. Along with your new budget, set aside some money in an emergency fund. With an additional life around the house, you are one person more likely to need money to cover an unexpected expense.
- Start a 529 plan for college savings. The earlier you start saving for your child’s, or childrens’, education, the greater chance you’ll have the money you’ll need when it’s time for college. Like a retirement plan, the hardest part about saving for college is getting started. Once you start, it will become part of your ongoing, expected expenses. A 529 plan is also a good place to direct contributions from relatives on birthdays and other occasions calling for gifts. This tip comes with a caveat: Don’t compromise your retirement contributions to fund a college plan. There are other ways than a 529 to get funds for college, far more than ways to supplement your income once you are retired.
- Pay down debt. The money you can save on credit card interest can be used to cover at least a portion of the new costs you are incurring with your child. If you have one or more high-interest credit cards, consider a debt consolidation loan at a lower rate to pay off the cards. Paying down your credit cards and taking out a debt consolidation loan will also likely improve your credit score.
There are many costs associated with bringing a new life into the world, some that you might not expect. Taking a few sensible measures to handle the expenses efficiently will not only save you money but enhance the enjoyment of your expanding family.
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