When we think about getting ready for a baby, its common to jump to all of the things you need to buy: the stroller, the bassinet, the changing table, and how you are going to decorate the nursery. This is the fun stuff, and there are so many great resources to help new parents figure out exactly what they need, including this registry list right here.
Financial wellness will have a much bigger and longer-term impact than the color scheme of the baby’s nursery, but surprisingly there is little out there on this topic. It is empowering to feel comfortable and educated about your family’s financial future. While it can be stressful to get started, it is so important for your little one’s future.
To simplify it, I broke down the 6 things that we did to prepare for Charlie, financially. These are things that can be done before your little one enters the world, but it is never too late to start any of these things. Do you have a 1-year-old, a 5-year-old, a kid starting high school? All of the below things apply.
- Make a budget – This is a great exercise whether you have kids or not. Budgeting is an effective way to take a look at what you are spending, where you can cut back, and understand how much you could potentially be saving each month. There are plenty of great apps and websites where you can link your bank accounts and let the site do the work for you. Mint and YouNeedABudget are two sites that you can check out to make this process easy. Both were reviewed and highly rated by NerdWallet in their The 7 Best Budget Apps for 2020 article. Recently, while I was personally going through this process, I noticed and cancelled a $50 monthly subscription fee to something I wasn’t using anymore – that’s $600 of found money for the year! I created an Excel-based budget sheet that I send out for free to anyone who signs up for my newsletter, so I encourage you to sign up!
Some big-ticket, reoccurring baby-related items to consider when creating your budget:
- Childcare (more on this below)
- Classes (i.e. music, dance, art)
There are a bunch of great articles with insight into how to create and stick with budget. I found this article, These 4 Easy Steps Will Teach You How to Budget (Finally), to be realistic and simple to follow.
- Create a “rainy day” account – Sometimes it seems like no matter how many salary increases you get, it never gets easier to save money. If you don’t have a “rainy day” fund, now is the time to start thinking about that. A “set it and forget it” type approach has worked best for me when it comes to saving. I have used the Acorns app for years and it has come in handy to save for large expenses, like our apartment renovation. I set both a small, automatic daily transfer and a “round up” transfer. The “round up” takes every purchase I make on my credit card, rounds to the nearest dollar and transfer that difference into my savings account. For example, if I made a purchase for $3.70, 30 cents would get deposited. Trust me, it adds up! If you use this Acorns invite link, you will get $5 immediately added to your account.
- Plan for childcare – Childcare is expensive everywhere, but in New York City this cost hits hard. In NYC, a nanny typically costs $20-25/hour, depending on the deal you strike. Daycare in NYC can be estimated at around $2,600 per month, but this can vary depending on the exact location and the hours you plan to send your child. The Penny Hoarder did a survey of over 1,200 parents in July 2018, and half the parents said they spent at least 15% of their income on child care. It isn’t just low-income parents who struggle to pay for childcare – 47% of the parents in this survey reported household incomes of $75,000 and above. If both parents plan to return to work, start researching affordable childcare options early to allow yourself more time to plan.
- Plan for college by opening a 529 account – College is one of the most burdensome things a person will go through financially, and since it seems so far in the future it can be easy to put off. The sooner you start, the more you will save, and the less stressful it will be. A couple months after Charlie was born, we opened a 529 plan, which is a tax-advantaged savings plan designed to encourage saving for future education costs. We did this through Fidelity, but you can do it through other banks or look into your state’s direct plan (like the NY 529 Direct Plan for example). You should read the SEC’s Introduction to 529 Plans for more information on 529 plans.
Tip: Consider making the child a beneficiary to the account, rather than the account owner. If you are the owner and the child is the beneficiary you will have control over the account, including changing the beneficiary to another eligible family member if the original beneficiary does not want to continue his or her education.
- Figure out baby’s health insurance – It’s important to figure out your plan for the baby’s health insurance right away. Many companies and plans require the baby to be added to the parent’s insurance within 30 days of birth. 30 days seems like a long time… until you have a baby and the days fly by. If you are covered through work, reach out to HR and find out how what the process is to add a baby in advance.
- Get Term Life Insurance & Look into a Will – These things are uncomfortable to think about but you will find comfort in knowing that you smartly planned for your child. It is also a good time to update any beneficiaries for existing life insurance you may have with your company
If you have never done any of this or find it confusing or overly stressful, consider finding a fee-only fiduciary. Fee-only financial planners have a fiduciary responsibility to act in their clients’ best interest. They do not accept fees or compensation based on product sales and generally provide more comprehensive advice. This is not to say that commission-based agents are not trustworthy or sincere, but many do not actually have a fiduciary responsibility to act in your best interest.