Congratulations! You’ve just gotten the positive pregnancy test results and you’re breathless with excitement — and nerves. Or maybe you’re a few months along, and the mild panic at the thought of being new parents is growing with the baby bump. Regardless, a baby means big changes, and some of those changes bring many new expenses. How will you pay for it all?
Whether you’re only thinking about having a baby, or your due date is fast approaching, there’s no need to stress about finances. By taking the necessary measures today, you can learn to cover these new expenses without falling into debt.
Here are some steps you can take to prepare financially to be new parents:
New parents should pay down debt
There’s more than just a nursery to set up before your baby’s arrival. Get your finances in order to make it easier to manage all new expenses and prepare for your child’s future. If this involves getting rid of debt, you can choose between these two plans:
The snowball method involves maximizing your payments toward your smallest debt balance first. Once it’s paid off, move on to the next-smallest debt, “snowballing” the payment from your previous debt into this one until it’s paid off, and repeating until you’re completely debt-free.
The avalanche method involves maximizing payments toward the debt with the highest interest rate and then moving on to the one with the second-highest interest rate until all debts are paid off.
Adjust your monthly budget
Babies don’t come cheap. When your baby arrives, you’ll need to buy baby gear and furniture, a new wardrobe, diapers and possibly child care. According to the USDA’s most recent report on the cost of raising a child, the average middle-income new parents will spend approximately $12,350-$13,900 on child-related expenses before their baby’s first birthday.
Most of these expenses will be ongoing, and it’s best to make room in your budget for these new items before the baby is born. Spend some time reviewing your monthly budget to look for ways to cut back on spending and give you that wiggle room to cover baby-related expenses.
Set up a baby account
All those baby expenses can be overwhelming! If you break them down into bite-sized pieces, they’ll be easier to manage. Put away some money for baby costs as soon as you plan on having a baby or find out you’re expecting. Set up a new savings account at United Texas Credit Union for baby expenses to keep this money separate from other savings. Automate these savings by setting up a monthly transfer from your payroll or checking account to your “baby account.”
Estimate prenatal care and delivery costs
While exact amounts vary by state and by insurance provider, prenatal care and delivery can cost thousands of dollars. This includes out-of-pocket expenses, co-pays and insurance deductibles. Prepare for these expenses now. Save for them or allocate a tax refund or work bonus, to pay for prenatal care and delivery.
Start saving for college
Hard as it may be to believe, your child will grow up one day and be ready for college. With college tuition now averaging $41,411 at private colleges, $11,171 for state residents at public colleges and $26,809 for out-of-state students at state schools, according to data reported by U.S. News and World Report, this can mean paying a small fortune to give your child an education. In addition to spreading the costs over 18 years, saving for your child’s college education now will give those savings the best chance at growth.
Consider opening a 529 plan or Coverdell Education Savings Account before your child is born where your college savings can grow tax-free.
New parents need a will
No one wants to think about their own death when preparing for a birth. However, writing a will and purchasing life insurance can be your child’s best gift in case the unthinkable happens.
Becoming new parents is a life-altering experience, and can mean big changes for your finances. Follow our tips to ensure you’re financially prepared for your new baby’s arrival.
Your Turn: What steps are you taking to prepare financially for a new baby? Tell us about it in the comments.
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