I’m a Financial Advisor: Here Are 10 Money Moves You Should Make Before Having Your First Child
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Having a child can be one of the most exciting and nerve-wracking times in a person’s life. While a child adds so much to a family, they can also change the trajectory of your finances. The average cost of raising a child in the U.S. is around $20,000 a year, but it’s actually a lot more for many families. The average cost of child care alone is around $9,000 per year.
While you may not be able to perfectly plan your finances before you have children, there are some strategies you will want to have in place before, as they may be that much harder to achieve after you have your first child.
GOBankingRates spoke with Robin Snell, CFP, and owner and chief of planning at Nested Financial & Tax Planning. She suggested you make the following money moves before having your first child.
Build That Emergency Fund
The time to build or reinforce your emergency fund is before your baby comes along, Snell said.
“Parenthood brings unforeseen challenges, and having a financial safety net can alleviate stress during unexpected situations. Aim for three to six months’ worth of living expenses in a readily accessible high-yield savings account.”
Not having an emergency fund is a much bigger emergency than having that baby wipe warmer, she said.
Create a Solid Budget
Begin by evaluating your current financial situation and creating a realistic budget, Snell said.
“Factor in your existing expenses, income, and savings goals. Compare those with the lifestyle changes that will occur for your family after baby arrives such as day care, reduction in work, child-friendly activities and additional self-care.”
Review Health Insurance
Giving birth is expensive, Snell said.
“After insurance, out-of-pocket costs run $1,000 to $2,500 in the U.S.,” she said.
It’s important to review your health insurance coverage to ensure it meets the needs of your growing family. Take a close look at the costs associated with prenatal care, childbirth and postnatal care.
“Anticipate potential medical expenses and evaluate if adjustments to your insurance plan are necessary,” Snell said. “Don’t have health insurance? Consider negotiating an upfront cash price with the hospital for a reduction in costs.”
Take Out Life Insurance
Now that your baby is coming along, life insurance becomes even more important.
“Consider obtaining or updating life insurance policies. This ensures that your family is financially protected in the unfortunate event of your or your partner’s absence. Evaluate coverage amounts based on your family’s needs, including mortgage payments, childcare costs, and education expenses.”
Get on Top of Your Debts
Tackle high-interest debt before the arrival of your little one.
“You definitely do not want to still be paying for your sporty convertible when you are looking for that new soccer mom/dad minivan,” Snell said. “Reducing financial burdens will provide more flexibility in your budget and relieve stress during the early stages of parenthood.”
Establish a Will and Guardianship
It might seem strange to think about leaving your child behind before they’re even born, but it’s important to be prepared.
“Plan for the future by creating a will and designating guardianship for your child. While no one wants to think of the worst-case scenario, this is a very urgent matter. Having a clear plan in place ensures your child is cared for according to your wishes, both emotionally and financially,” Snell said.
Create a Child Care Budget
“Safe and reliable care for your child comes at a pretty penny,” Snell said.
In fact, for some families, the cost of child care outweighs the income of one parent’s employment and challenges that parent’s ability to maintain their job, she said.
“Research and plan for child care costs, including day care, babysitters, or potential adjustments to work schedules. Don’t forget to weigh the potential long-term costs of reduced savings and retirement benefits.”
Save For Their Education
College may seem a long way off for the soon-to-be apple of your eye, but the earlier you think about paying for it, the more you can save.
“Take advantage of time being on your side and the power of compound interest. Look into setting up a 529 plan or other college savings accounts to provide a head start on future education costs,” Snell said.
Parental Leave and Income Planning
Taking time off to have a baby is expensive, too. Some companies will pay generously for maternity and paternity leave, while others may not.
“Understand your employer’s parental leave policies and plan accordingly. Consider how the temporary reduction in income during parental leave will impact your budget and make necessary adjustments.”
It’s also important to consider how the time away from your job may affect your career trajectory, Snell said.
Purchase Baby Essentials Wisely
While it’s natural to want the best for your child, be mindful of your budget when purchasing baby essentials.
“Yes, that designer diaper bag will make you the envy of the playground, but many parents soon find that they can be impractical for carting around all the baby accouterments,” Snell said.
It’s important to differentiate between needs and wants, while still focusing on practical and cost-effective options without compromising on safety and quality.
“Look for convertible items that can grow with your child. Be sure to check with your child touting friends to see if they have any gently used hand-me-down items for you. After all, the baby days are long but the years are short.”
By taking proactive steps to align your financial ducks, you’ll be better prepared to embrace the joys and challenges that come with the arrival of your first child.
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