Having a baby really does change everything. As you get ready to welcome a new member of your family, you might find your priorities shifting and that you’re more concerned about the long run than the short term. While there are no guarantees in life, financial planning for a new baby can help make sure you and your entire family are ready and protected when the little one arrives and well into the future.
Save for Leave
Some companies in the US offer paid maternity or paternity leave for new parents, but under the Family and Medical Leave Act (FMLA), they aren’t required to. If your employer qualifies for FMLA, you can get up to 12 weeks off after your baby is born, but you don’t have to be paid for that time off. If you hope to take as much time off from work as possible, it’s a good idea to start saving for that time off as soon as you can. Figure out how much you’ll miss in wages during your time off, and set up a separate account, so that you can start saving for your leave. You might have to adjust your budget to make up for any wages you’ll miss after the baby is born, such as reducing the amount you spend on non necessities.
Budget for Baby Expenses
Planning for a new baby means planning for the new baby’s expenses. If you plan on returning to work at some point, you’ll want to include the cost of childcare in your budget. Making room for a baby in your budget can mean trimming from other areas, such as your own clothing budget or your dining out budget. If you have friends or family members who have recently welcomed babies into their lives, don’t be shy about accepting hand-me-downs from them. Once your little one has out grown the hand-me-downs, you can pay it forward by passing them on to another new parent.
Prepare for the Worst
It might sound bleak, but planning for a new baby also means preparing for the worst case scenario. If you haven’t yet purchased a life insurance policy, now is the time to do so, so that there is some level of protection for your child and surviving partner if something happens to you. When purchasing a policy, think about your income and about how long your family would need outside support if the worst happened to you. You might also consider purchasing disability insurance, in case you are injured and unable to work. Having an emergency fund with between six to eight months’ worth of expenses in it can also protect your family in the event of an unexpected situation.
Plan for the Future
Along with prepping for the worst, you want to start planning for your baby’s future. College might be years away, but it’s never too early to open a 529 plan for your child. Designed to be used to pay for college, a 529 plan offers a number of tax savings, such as no federal tax on earnings as long as the amount is used to pay for school.
While having a baby means shuffling your financial abilities somewhat, you don’t want to shift your entire focus to your little one. Continue to save for your retirement and to work towards paying off any debts, so that your entire family can enjoy a bright financial future.
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