How to Financially Prepare for a Baby
Expecting a baby? Congrats! Here’s a few things your new arrival is guaranteed to do: cry a lot when you want to sleep, cause you to feel more love than you thought possible, and oh, cost you hundreds of thousands of dollars.
That’s no exaggeration. The federal government puts the cost of raising a child at $233,000, counting all expenses through age 18. About $13,000 a year is a big hill to climb. And it can seem even higher because most parents vastly underestimate the financial commitment. A consumer website survey found that 54% of all couples thought baby expenses would be under $5,000 in their child’s first year.
How can you start a family and not go broke? The secret is preparing financially for a baby. You’ll no doubt get child-rearing advice from everyone you know. Let the team here at Dominion Energy Credit Union add our two cents – because a little financial advice might save you a lot of dollars.
How to Prepare for a Baby
Here some good strategies to preparing for your new little bundle of (expensive) joy:
- Start Cutting Back: No matter how much you currently earn, you’re going to have less to spend on yourself when the baby arrives. Get frugal with luxuries well before the due date, such as restaurant meals and vacations. If one parent is going to take time off after the birth, it’s good to “practice” living on one income. At Dominion Energy Credit Union our online banking service offers budgeting tools you can use to set a household budget and track spending.
- Reduce Debt: Devote some of this savings to attacking your debt. All that money spent on interest charges is soon going to be needed for diapers and doctor visits. One idea is to transfer your credit card balance to a card with a lower rate. Dominion Energy Credit Union offers a choice of low-cost credit cards. Some even offer rewards which can help you get a little money back on all those purchases.
- Open A Savings Account: Even before your son or daughter is born, establish a special savings account and fill it with money to be used only for baby expenses. That way, you’ll have something to fall back on when you encounter unexpected costs.
- Check Your Insurance: You’d be surprised at how many insurance plans don’t cover some basic medical costs. Contact your insurer and ask about topics like pre-natal tests, hospital stay deductibles, and breast-feeding support services. In some cases, it’s possible to change coverage part way through a pregnancy. Another option is to open a health savings account, that is often available through your employer, that offers tax benefits and provides a cushion for unexpected costs.
- Pick A Pediatrician: You should choose a doctor you are comfortable with. But also make sure their practice is part of your insurance network, so you don’t end up with extra high co-pays for baby check-ups.
How Can I Reduce Baby Expenses?
The cost of having a baby continues to increase when your child gets home from the hospital. No doubt, family and friends will join you in celebration. Chances are, they’ll bring gifts. One way to cut your costs is to ask them to pitch in for essentials instead of indulging the newborn with designer outfits and expensive stuffed animals. Here are some other ways to save:
- Resist buying every new product breathlessly advertised on parenting websites. Babies have survived for eons without a gadget to warm up their wipes.
- Gratefully accept gently used hand-me-down items. However, make sure older cribs, playpens and car seats meet current safety standards.
- Look for sales and discounts online. Dozens of websites offer deals on baby gear from Amazon and Target to more specialized stores.
- Talk to other parents about providing babysitting services for one another instead of hiring expensive sitters.
- Shop at warehouse stores like Costco, Sams Club or BJs to buy items like diapers, baby food and formula in bulk.
As your child starts growing, you’ll want to take additional financial steps:
- Life Insurance: If you don’t have an insurance policy, you should get one. If you do have a policy, consider increasing the dollar total. After all, if something happens to you, you’ll want to ensure there are financial resources available to raise your child.
- New Accounts: Shortly after your child is born, get him or her a Social Security number and set up a youth savings account in his or her name. It’s the perfect place for birthday and holiday gifts from family members. At Dominion Energy Credit Union, we offer special accounts for young people.
- College Saving: Private college costs are already topping $50,000 a year. It’s never too early to open a Coverdell Education Savings Account or to set up a 529 Plan. Get tips and use a calculator for estimating the true costs of college then contact Dominion Energy Credit Union so we can help you sort through the options.
Yes, it’s a lot to think about. But planning for a baby financially is nearly as important as providing a warm home and proper nourishment. With financial matters under control, you’ll feel less stress and be able to enjoy your family time even more.
And who knows? Someday your child may thank you for being such a responsible parent.
Contact Dominion Energy Credit Union for help getting financially ready for a baby.