Planning for Peace: Tips on How to Financially Prepare for Parenthood
Having your first baby is an emotionally exhilarating stage in life to be cherished. But it can also be financially frightening. As you get to know your new bundle of joy amid sleep deprivation, feedings, and diaper changes, having a financial plan in place will bring you some peace of mind. Here are a few tips to help you prepare.
Revisit your goals
Just as marriage can change individual goals, bringing a child into the world requires parents to revisit their financial goals. This includes everything from adjusting your savings to coming up with a game plan for work and travel. It’s a good idea to hold regular meetings with your spouse or partner to discuss your goals and progress. While planning and saving for things like retirement and college is good practice, you may need to adjust your spending a little once the baby arrives. Even the most prepared parents run into unforeseen costs from time to time. The most important thing is that you stay aware, keep an open dialogue, and remain willing to rework your budget.
Budget and save
Once you’ve talked about goals, it’s time to follow through with budgeting and saving. If you want the best odds of achieving your goals, make a realistic budget that fits into your new or upcoming parenting lifestyle. Start with your current monthly budget and cash flow (income, fixed and variable expenses, monthly savings, etc.), and look for where you can lower costs and up your savings. Make sure to factor in diapers, formula, equipment, and other baby expenses. If you don’t have an emergency fund, now is the time to start. If you have one already, increase it if possible. While saving is important, try not to rack up a bunch of credit card debt; it’s better to reduce or stall your savings for a time to cover baby expenses.
Understand life insurance
Another factor to consider is getting a life insurance plan. The primary goal of life insurance is to provide your spouse and child with financial security in the case of an unexpected event. It’s a great thing to have, but it’s important for you to understand the different kinds of policies, and how the cash values and premiums vary. Also, if you have a universal or whole life insurance policy, you can sell your policy to free up cash in retirement. Make sure to do your research before you purchase life insurance.
Keep saving for retirement
It may be tough to think about your retirement — much less continue to invest in it — amid all the baby expenses. But keep it a priority, because taking care of yourself will allow you to care of your children over the long haul. Also, by saving and planning for the future, you’re setting an example for your kids. So if it comes down to choosing between college or retirement, opt to continue saving for your retirement. Most likely, your kid will have a few options when it’s time to pay for college (i.e. grants, loans, scholarships, etc.), and you want to take any precaution you can to ensure they’re not left with the financial burden of caring for you in the future.
Look into a 529 plan
Don’t get me wrong, setting money aside for your child’s future education is a great way to take care of them. Just prioritize it correctly. That said, 529 plans are a great option because they allow you to maintain complete control of the money. Plus, growth in the fund is typically tax-free when used for college. Furthermore, if your child ends up receiving a scholarship or doesn’t need to access the full funds in their 529 plan, you can transfer the money to a different account (for another child).
Financially preparing will help you revel in the special moment of welcoming your first child. Remember to revisit your financial goals, make a realistic budget, and make adjustments as needed. Research life insurance and be sure you understand it before you purchase a policy. Finally, prioritize your retirement fund and consider 529 plans.
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