The Financial Impacts of Having a Baby
Your family is growing! Along with getting ready to have a new baby in the house, your financial obligations are growing as well. During this time, you may feel more financial responsibility for planning for your future, but your baby’s future as well. You also might be wondering how much money you should save for your child and what the true cost of having a baby might be. Today, I’m breaking down the six most common financial impacts and associated costs of having a baby.
Budget for the cost of childcare and other new expenses
What are each other's mindsets towards money, how do you both see money, and what does money mean to you? It is also important to discuss your history with money. It would be essential to understand your fiancés past with money decisions so that you can understand where they are coming from as you join finances. It can also provide ways to help them make wise financial decisions moving forward or where strengths and weaknesses are around finances in the relationship.
Tax benefits to having children
After having a baby, you will receive a slight break in your tax return as you can now claim a dependent. You may also find you qualify for additional tax credits with your newborn that were not available to you before. These tax breaks may allow you some freedom for more strategic tax planning strategies. More long term tax strategies may have been hard to justify prior to your newborn, but keep an eye out for opportunities that this newfound tax break may create.
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Update your insurance and beneficiaries
If you have health coverage through your employer, your newborn will qualify as a triggering event around eligibility for open enrollment. Open enrollment will allow you to change your health insurance plan to a family plan that will include your baby. You may also want to update beneficiaries where applicable (think retirement plans, insurances, old employer plans, etc.) to include your newborn in the event your primary beneficiary were to predecease you. (See below for further considerations.)
Create guardianship documents and update any wills
This one is important as you may want to put in place or update any legal documents to make sure guardianship is set up properly in case something happens to you. The guardian you designate will have a lot of control, especially if your assets would be received by a minor child. So, it is crucial to choose wisely and update your wills and any other legal documents to reflect your growing family. Legal considerations can be important with a minor child to ensure assets are adequately handled and your wishes are carried out in case of the unexpected.
Begin a college savings plan for your child
The earlier you start a college savings plan for your child, the more of an impact you can make. The most common theme I run into with new clients is that they wish they had started education funding for their child(ren) sooner. It may be hard to start saving right out of the gate, but starting sooner than later can be extremely beneficial if you would like to help with education costs. Often, an early start to college funding plans can even lead to more successful retirement planning down the line. (More on this below!) When discussing education funding, most folks we talk to jump straight to 529s or other education-specific options. These education funding plans can allow for great tax benefits but may narrow the scope of use for these funds in the future. Some of our clients like the idea of helping their kids financially but don’t want their funds to be solely tied to college. So, consider what is important to you, and if some flexibility in your plan may be important.
Don’t forget to save for your retirement
Remember to save for yourself; there are no loans or grants for retirement. Your personal values will determine how much you would like to skew your savings to education vs. retirement, however, it is essential to remember that there may be alternative funding options when it comes to education. In contrast, retirement doesn’t give us a lot of alternative options or do-overs. It can be easy to forget about yourself as you want to do anything you can to support your newborn, but it is important to take care of yourself and your future.
Congratulations on your growing family. With new family members comes additional financial responsibility during this very exciting time! With this list of the six most common financial impacts of having a child and the costs of having a baby, you have an excellent baseline to get started. That said, if you still aren’t sure where to start or how to prioritize, I am always available to answer your questions. Feel free to reach out to me if I can be of help!