Having a new baby comes with a host of new challenges. While the excitement and emotions of this new chapter may take center stage, the financial implications can be a worrying undertone for many expecting parents.
Recent studies put the cost of raising a child from birth – 18 at just under $250,000, not counting the significant expense of college.
5 Ways for New Parents to Cut Costs
With the countdown on, it’s important to get everything in order before your baby arrives. Here’s how to set your finances up for an easier ride into parenthood.
- Identify Your Financial Goals and Set a Budget
Setting a clear budget with goals at any stage of life is a savvy move. One partner may want to travel, while the other may be keen to pursue further education or renovate the home.
Child care is a major cost for families, so it must be factored into future plans so that you can set realistic goals with your expenses in mind. Tinker with your budget and track expenses, adjusting until you find a system that works.
- Look for Life Insurance
Just as a new life begins, parents tend to consider their own mortality. To make sure your little ones are never left in the lurch, seek out coverage that will account for future expenses such as college or mortgage payments.
A good barometer is to find insurance that covers more than 10 times your annual income. Even stay-at-home parents should get insurance, as their passing will leave their partner facing childcare costs.
- Think About Your Tax
For new parents, having a baby actually offers some benefits as far as tax decisions go.
Even if your baby is born at the end of the year, you can get a tax bonus, which may reduce your income by several thousand. Child care credit is another credit, which offers up to 35% of your child care expenses, depending on how many children you have.
In any case, it is worthwhile having a meeting with your employer to revise your tax information prior to the big day.
- Set up a College Savings Plan
It may be 18 years away, but it’s never too early to think about sending your kid to college. Opening up a 529 account for your child will let you retain complete control of the money.
These funds will be free of tax, at both federal and state levels. Getting a savings plan for college funds set up early will prevent hardship for parents down the road.
Although the concept of lowering your monthly payments may sound good, there is a lot to consider when refinancing your home. Give the decision the thought and time it deserves.
If it’s feasible, getting a refinancing loan is an effective strategy to meet your goals.
Smart Strategy Is Key to a Happy Family
As daunting as the prospect may seem, the impending financial pressure of having a child can be managed with a solid plan that takes all factors into account.
Regardless of the relationship between parents, or any guardians involved – clear lines of communication are crucial. With open dialogue about costs and contributions, it’s possible to find a system that keeps the family afloat.