What Financial Advisors Want You To Know About Having a Baby
Having a baby is a huge life transition – physically, emotionally and yes, financially. When planning your baby’s arrival, prepare your family finances, also — you I don’t want to underestimate the costs of the first year of your baby.
“Turn to any social media channel, and you’ll see everything from gender reveals to baby showers and even ‘sip and see'” Jamilah McCluney, a financial advisor, tells Parents. “As a financial advisor, I think it takes as much financial pre-planning, if not more, to make sure you’re financially ready for your newborn,” McCluney says.
USDA reports that it costs an average of $ 13,741 each year to raise a child in the United States from birth to age 17, not including tuition. The number rises to over $ 16,000 per year if inflation-related costs are factored in. So you might want to plan ahead and start saving as soon as possible.
“It’s important to implement these elements early. The earlier you start, the more time you have to build up funds and grow,” advises McCluney.
Here’s what financial advisors want you to know before welcoming your new baby, so you can be sure you’re as financially prepared as possible.
Annual child care costs may be higher than expected.
The the cost of child care continues to rise, so be sure to start saving for daycare costs. The annual cost of caring for an infant is approximately $ 16,000 according to the latest The data through the Center for American Progress — about $ 1,300 per month. The the cost of childcare can be even more expensive in cities, at about $ 20,000 per year.
Michelle Young, a Minnesota-based financial advisor for Ameriprise, says having a monthly savings plan can help. “One recommendation would be to practice saving the monthly childcare expenses in a separate savings account as a family when you find out you’re pregnant, and then you will get used to the extra expenses before that happens. produce, ”Young explains. She says that the money you save in this account can also be used for other unforeseen baby expenses.
Understand the benefits available to parents in your business.
If your business offers parent benefits, have a good understanding of them so that you can take advantage of these business benefits as you prepare to welcome your baby. Young says some of the benefits of knowing or knowing would be parental leave policies, whether you will have to use short-term disability, the child care allowances that are available, and the savings accounts for dependents that may be available. help reduce your taxable income.
If your business offers health benefits, consider the policies and prices of family health care plans as you will be adding your new baby to your insurance. “If there are multiple health plans between the parents, decide which health plan will work best for your family’s needs,” Young explains.
If you have a Health Savings Account (HSA), use it.
Speaking of health benefits, if you have a high deductible health plan (HDHP) with an HSA, you should make use of it. “These are incredible savings tools that are underutilized,” says Mike Hakimi, Certified Financial Planner and Founder of Black Dog Financial Planning, recount Parents. Check if your business matches or also contributes to your HSA for more savings. With HSAs, pre-tax dollars are taken from your paycheck and put into your HSA where they will increase tax-free and can be invested or used for medical expenses.
“This can be a huge tax savings, especially given the high cost of having a child. Unlike other medical savings accounts such as an FSA, an HSA doesn’t ‘use it or lose it, ”Hakimi explains. The money in your HSA account will carry over to the following year and you can take it with you if you ever decide to leave your business.
If an HSA or other tax-advantaged account isn’t an option for you, Hakimi recommends starting a sinking fund. A sinking fund is a savings account that is separate from your emergency fund and can be located with your primary bank or in an online high yield savings account. Hakimi suggests starting one as soon as you find out you’re going to have a baby or even when you start trying.
“A bi-weekly deposit of $ 250 for the next eight months would be about $ 5,000. That could cover a good chunk of medical costs,” he explains.
Save for your child’s education.
It’s no secret that college tuition is expensive, so start your savings plan early. “It is never too early to start investing for the university”, Jeanne Berger, private client advisor at JP Morgan Wealth Management recount Parents. Berger and Hakimi both recommend creating a university fund with a 529 education savings plan.
“The money invested can grow tax-free and, if used for university expenses, can be distributed tax-free. Depending on the state you live in, there may also be a deduction or a tax credit, ”Hakimi explains. You will have a lot of expense to save as a future parent, but be sure to save for your child, even if it is not specifically a college fund.
“Save for emergencies, save for a new home, save for their upcoming education (in a 529 or other financial vehicles), but save anyway,” advises McCluney.
Keep in mind the most important financial impact of having a baby, and plan ahead.
Again, plan ahead and start saving early for all expenses (unforeseen and otherwise) related to the birth of a baby.
“Most people forget about the size of the car, the number of rooms in the house, and sometimes the size of the dining room table at the start of planning for the kids,” Young explains. She says look at the financial changes that will come with your new addition and have a plan.
“As a mom of a five year old, three year old and five month old child, I can tell you that with a new baby, your expenses are likely to change, and you may want to think about new goals to incorporate into. your financial strategy, ”says Berger, who recommends meeting with a financial advisor to prepare for these changes.
Budget for planned expenses, increase your savings, make sure all of your important financial documents are up to date, and you (and your finances) should be in good baby shape.