How to prepare financially for a baby

Children can be expensive so it can help to plan early on. 

Consider the expenses that come with raising children

 Many people may never feel “financially ready” to have children. You can expect housing, food and childcare costs (along with healthcare costs in some locations) to represent the majority of your extra expenses. That doesn’t mean you can’t prepare; we have some ideas for you below.

Housing

Food

Childcare and education

Travel

Healthcare

Recreation

Clothing

Try to think about finances before your new addition arrives.

Financial stability is a great goal when growing your family. You may already be saving for retirement and building an emergency fund, but there may be extra steps to take when adding a new member to your household. 

Managing finances as your family grows

You may need to reevaluate your budget as your family gets bigger.

Your expenses will likely increase after your baby or child comes home. There may be new expenses to deal with like doctors’ appointments, child-care costs, or new school clothes and supplies. If you’re adopting, you may not have time to collect supplies before receiving the placement call, so you may want to start saving for your child at the beginning of the adoption process. 

Essential expenses (<50%)

This covers housing, food, transportation, health care, childcare, education costs and other minimum debt payments. 

Retirement savings (10%+)

This percentage includes your individual contributions, along contributions from your employer. 

Short-term savings (5%+)

This helps you build an emergency fund and cover other unplanned expenses. 

Make a basic estate plan

Note: the specific documents needed vary by country, as does the legal framework; the suggestions below are intended to be general guidance and you should consider taking professional legal or tax advice.

If you haven’t already created a will and thought about contingency plans for your child or children, consider doing it now. A will is an essential legal document that clarifies your wishes regarding the distribution of your property and the care of any minor children when you die. If you don't specify who is best suited to look after your children and both you and your spouse die prematurely, the authorities in your location likely will. While there are differences across countries, many will assume that your current partner may inherit all your assets if you are married at the time of your death. This may not be the result you intended (for example, if you have children from a previous marriage). 

Other steps to take could include setting up power of attorney and health care directives (naming a health care representative and writing a living will) (or equivalent documents in your country) in case you can’t make financial or health care decisions for yourself. If you and your partner aren’t married, you may need to take these steps to help ensure the ability to make decisions for each other if something happens under the laws of your country.

After any big change in your life, it’s a good idea to check the beneficiaries named on your financial accounts and insurance. That can help ensure that they are up to date and reflect your current wishes. Estates issue proceeds to the beneficiaries named on accounts before looking at instructions given in other estate planning documents, so they can be a key piece of your estate plan.

Your situation may warrant more extensive estate planning which can include establishing trusts to manage your assets. 

Review your health insurance

If you have private health insurance (your own or provided by your employer), ensure that the new family member(s) are added as your dependent(s). Check the coverage provided to understand the benefits on offer and how much you are expected to pay. You should also research what your government covers as state-provided healthcare may be more cost efficient.

If you’re able to plan ahead before pregnancy or adoption, it can be a good idea to evaluate all your health insurance options and find a plan that you can afford that reduces the risk of unreimbursed medical bills if health care is not already provided by your government. 

Pay down high-interest debt

It’s a good idea to pay down credit card balances, to the extent you’re able, before adding to your family. Growing your family comes with added expenses, which could make it more difficult to pay down lingering debts. 

Save for an emergency

Consider building an emergency fund that could cover necessary expenses for 3 to 6 months. Then continue to save 5% of your income for any unexpected expenses that come up—like car repairs or replacing an appliance. 

Think about childcare and education costs  

Child care is a big expense. Given all the financial juggling you may need to do in order to make it work, saving for higher education may not be a priority. But saving for university or trade courses early can really help later on. Time is one of the most important elements in a long-term saving and investing plan. Just saving a little bit on a consistent basis can help you get closer to your savings goals. 

See if your employer offers any perquisites

Your employer may offer some benefits that could help as your family grows, including: 

Parental Leave

Time with your family for you to begin the new life-long relationship in the right way, usually with some form of pay.

Adoption Assistance

Some employers offer benefits that help with the costs of adoption. 

Other well-being benefits

Taking care of yourself is vital as you now have others to care for. Take advantage of what your employer offers in other areas so that you can give of your best to your family. Examples include flexible time, employee assistance programs, savings programs, and on-site parental facilities.

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