If you’ve just received the news that you’re pregnant, one thing’s for sure, life as you know it is over. But that’s a good thing. The joys of parenthood far outweigh the cons but you’ll need a solid financial plan if you hope to make it through the next nine months.
So after you’ve shared the news with your parents and 500 of your closest friends on Facebook, you’d better start thinking about how this is going to affect your wallet.
You want the best for your family of course but who should you listen to? When it comes to giving new parents advice, suddenly it seems everyone is an expert: don’t get this brand of diapers, make sure to get that kind of car seat, don’t rush to get the baby the first time it cries, and so forth. The good news is that you will have nearly nine months to prepare your home. Make sure to use a few of those hours to get your financial house in order too. Both are about to go through major changes.
No matter your fiscal discipline, there’s about to be another mouth to feed. Many couples will want or need to move into a bigger space. The extent of many of your baby-related expenses will be controllable, as your and your partner’s expenses are today. However, even with maximum restraint, you’ll still be walking down new grocery aisles and visiting new stores, ultimately spending money on products and services you never considered previously.
If you’re financially unprepared for your new baby, you could end up financing diapers. Here are the top 5 things you should do when you’re expecting:
Tip 1: Communicate With Your Partner
The theoretical conversations you may have had a few times previously will now become real. Decisions will have to be made. Nothing should be assumed, Talk about them.
- Will one of you stay home? If so, for how long? Things may change. That’s okay.
- Could all of you live on just one income? If you think so, what makes you so confident? Have you ever done so before?
Tip 2: Live Within Your Means
It’s as important as ever to make sure to live within your means. Resist the temptation to use your new arrival as an excuse to purchase things you can’t afford and don’t really need. If you have a car with four doors and four tires, you already have a “family car.” Your apartment or existing abode is probably big enough to accommodate the baby. Try to put off a major move for as long as possible. Not everything has to fit the stereotype. Spend on what’s important to you within the constraints of what you can actually afford.
Tip 3: Establish An Emergency Fund Now
If you haven’t already done so, there’s no time like the present to establish an emergency fund. The traditional three to six months sounds like a lot. It is a lot. But it’s better to have some money socked away for this purpose than none at all. Do what is possible. Remember you’re trying to set aside three to six months of non-discretionary living expenses only, not your full monthly income. If you aspire to have one partner stay at home for an extended period, one easy way to enhance your emergency fund is to practice living on one income while both spouses are still working.
Job security still have you feeling confident you’ll never need to tap an emergency fund? It’s not just about your job. When you first hold your baby in a few months, it will be so obvious- there’s another person in the picture now. The more people in the family, the greater chance there is for some kind of emergency. Be prepared.
Tip 4: Get Life Insurance
Many young adults without children can actually spend their money more wisely than on life insurance. That concept changes immediately upon conception. Now, someone will be depending on your income for years to come. You’ll need to be sure that if something unfortunate happens to you, your child can still maintain the lifestyle you’ve been providing. Only life insurance can provide that financial security.
Tip 5: Sign Up for the Health Care Reimbursement Account at Work
Also known as a flexible spending account (FSA), this account requiring minor paperwork can effectively save you 25% or more (depending on your tax rate) on your medical expenses. When you’re expecting, you’re going to have big medical bills, including pre-natal care and delivery.
Your next annual enrollment date presents the perfect chance to increase your contribution rate to reflect your new medical spending and to reduce your after-tax costs in the process. If you won’t reach an enrollment date prior to delivery, remember that your child’s birth constitutes a “life event” and will give you a special one-time opportunity to increase your contribution rate.
Be prepared, don’t overspend, and remember that what really matters is not the brand, design, or expense of your child’s bedding, stroller, or Onesie, but rather your love and care for them.
Michael B. Rubin is the author of Beyond Paycheck to Paycheck and the blog of the same name. He is the President of Total Candor, a financial planning education company.