Family Finance: Being financially prepared for a new arrival

 

 It goes without saying that the birth or adoption of a child is probably one of the most rewarding and most significant life experiences. Financially however, for many families it is generally regarded as one of the most challenging. A baby is another mouth to feed, clothe, keep entertained and educate – all at significant cost.
The introduction of a new baby raises numerous questions related to money. New parenthood naturally comes with new financial responsibility. The change in lifestyle and increased expense, which generally arrive at a period of time when a young couple is just starting out and building assets, is immense The key is to be financially prepared and aware of your financial situation. Here are some of the steps you should consider as you plan for a new baby.

Make a budget
A most important first step is to develop a new household budget. With the new addition to the family, it pays to begin early to start to review and estimate current and future expenses, from nappies, to university. Even for a first baby when one may be particularly sentimental and will want to buy everything new, don’t be tempted to over-shop; remember babies outgrow everything very quickly; you may even be able to borrow expensive equipment from close friends or family that the baby will use only for a short time.

Calculate roughly how much you will need to provide for all the costs. Will your income be enough to cover all these additional expenses? Are you or your spouse in a position to earn additional income by increasing your productivity at this time? If not, you may have to start cutting down on non-essential expenses before the baby is born and adjust your lifestyle accordingly.

Start saving early
Once the baby arrives your expenses go up so it may be harder to cope with any high interest debt. Even reducing it significantly before the child arrives could give you a sense of relief. You don’t want to be overwhelmed by high outstanding balances during a time where there is an additional person to provide for and in some cases, one fewer income.
As soon as you decide to start a family or as soon as you know that you are expecting, start to set aside some money on a regular basis; create a “baby fund” to cover looming expenses. Such savings will be very useful when the baby is born as one parent usually has to take time off work for maternity leave and even longer, which can have implications for family income. You should also consider taking this opportunity to save that money in some type of investment vehicle for future or emergency use With the money you save by cutting corners elsewhere, open a money market account or other short-term savings vehicle. Since you may be forced to use the funds in an emergency, avoid placing the money in an account that has early withdrawal penalties.

Maternity Leave
Not all companies do not have very generous maternity or paternity leaves, but most employees can take a 12 week unpaid leave to bond with a child under the Family and Medical Leave Act without losing their jobs. Since the leave is unpaid you need to figure out if you have enough cash to cover the leave.

Will you need and be able to afford a bigger apartment/ home. How much will childcare cost? Can you afford to have your spouse not work for a period of time? How will you get by on one income alone?
Your monthly household income is likely to change; Who will take care of the child? Will one parent stay at home; work full time, or part time? For how long will that person stay away from work? Even if you are able to or decide to stay at home with the children, bear in mind that an extended absence from work, skills and training, could limit future career options, and therefore your lifetime earning potential. If you do wish to pursue a career, consider maintaining part-time work or continue to develop yourself through training and education while the children are still young.

Childcare 

For many families, child-care is likely to be a major expense especially as most women must return to work outside the home or run their own business to earn income. Good childcare is never cheap and must be planned for before the baby arrives. Visit a few good day care centers in your area, interview nannies and decide what is best for your baby.  If both parents will return to work soon after the baby’s arrival, you need to factor this expense into your monthly budget.

Are you insured?

With a family depending on you, you need to know they’ll be protected if your life changes or anything happens to you. You can choose from different levels of cover to protect your mortgage, and to provide for your loved ones if you die.
If your employer has a family health insurance plan, add the new baby onto it. The additional sum will be predictable but it is more difficult to plan for each visit to the paediatrician, medication, and other unexpected medical expenses that tend to come up.

Even if you do have health insurance you could still end up paying quite a bit out of pocket depending on what type of insurance you have. Check the policy so you know what expenses you will have to incur. Some companies offer staff multiple insurance options where it is possible to switch into a slightly more expensive policy that covers more from pregnancy, to delivery and afterwards. If you do not already have health insurance in place and you are pregnant it may be hard to buy insurance since insurance companies treat pregnancy as a pre-existing condition.

If you don’t have health insurance, get some immediately. A newborn is naturally very susceptible to disease so having medical coverage for the baby is very important.


Review your life insurance.

Do you have a life insurance cover? As morbid as it sounds, it is important to buy life insurance to protect your child in case you die before his or her adulthood in case something happens to you? You should have a solid strategy in place for your children's care in the event of your death.

Get a will
The birth of a child is also a good time to review your will and make any necessary changes to protect your family. Having a new baby is a good time for couples to check if beneficiaries on any financial documents need to be changed, including their will. Most young people consider it absurd to write a will when they have little. Yet, one of the most important reasons for having a will has nothing to do with money. For example, a will gives you the ability to say who will raise your child in the event that both parents die. If you don’t have a will, the court decides. If you do not have clear instructions in a will, the courts can appoint a guardian for your child and a court-ordered administrator will manage their assets.

Most of us avoid estate planning because we don’t want to think about the possibility of our early demise. Get it done now and you shouldn't have to think about it again until your circumstances change significantly. At least ensure that funds are in place for a good education for your child.

Start saving for college

Funding your children’s education is likely to be the greatest financial challenge we ever face. University education seems a lifetime away for your new child, but bear in mind that the costs of higher education continue to rise and the sooner you begin save towards this, the better. Time is on your side. By starting early, you will have the benefit of a wider variety of investment and savings options to help you to achieve your goals.
With proper financial planning, budgeting for the baby, and saving from the start, you can welcome your new bundle of joy into the world without having to worry about your finances.

source:moneymatterswithnimi.com