Welcoming a new addition to your family is a time of joy and excitement! It can also feel a bit overwhelming as you run through the list of things you must do to prepare. Aside from setting up the nursery and buying clothes, supplies, and car seats, there are also financial steps you should take to ensure a smooth transition.
Caring for a new baby is a joyous yet time-consuming task. So, any financial measures you can take before your bundle of joy arrives will be in your best interest. In this article, we’ve outlined some financial moves to perform before welcoming your new addition so you can begin this next chapter of your family’s life on steady ground.
Eliminate as Much Debt as Possible
Clearing out as much of your debt as you can before adding a new member to your family allows you to make more room in your budget for new expenses. And new babies will bring a multitude of new costs!
If you have outstanding balances that you want to wipe clean before welcoming your new addition, there are two popular strategies you can follow:
- The Snowball Method: This method involves paying off your smallest debt first. Once you pay off your smallest debt, move on to the next smallest. The cycle will continue until you are debt-free. The psychological effect of this method is powerful as you gain confidence and motivation as you witness your debts being eliminated.
- The Avalanche Method: With this method, you will pay extra toward your highest-cost debts (those with the highest interest rate). Eliminating high-interest debt will instantly save you money – allowing you to put more of your hard-earned dollars toward other debts. Once your highest-cost debt is eliminated, you move to the next most expensive, and so on.
When deciding which strategy will work best for you, consider your specific debts and habits toward spending. While the Snowball Method builds confidence and momentum, the Avalanche Method saves you money quicker. Both options are effective debt-reduction tools.
Set Up a Separate Account for Baby-Related Expenses
In the months leading up to your baby’s arrival, be prepared for several extra expenses. You’ll need to spring for upfront purchases like a crib, stroller, car seat, and more, plus factor in your ongoing costs once the baby arrives, including diapers, formula, childcare, etc.
You can help offset the strain on your family’s budget and keep your finances straight by setting up a separate account solely for baby-related expenses. This tactic will also help you track how much you’re spending on baby costs and make adjustments if necessary.
To extend your family budget further, consider these cost-saving tips:
- Buy Used: As much as you may want to buy brand-new items for your bundle of joy, new items come with higher price tags. Go through your list of wants and needs and determine which items you could consider buying used. For example, you might splurge more on a new car seat with the latest safety features and buy used infant clothes (they grow out of them so fast!).
- Join a Swap: Your local community may host a mom-swap or have a Facebook or other social media group dedicated to buying/selling/trading baby items to help new moms. Plus, this group may be an excellent resource for all kinds of tips and tricks!
- Shop Secondhand: Never underestimate the items you may be able to find at thrift stores! You may be able to snag items in nearly new condition or possibly even brand-new if the parent who donated them received multiples of an item.
Estimate Prenatal Care & Delivery Costs
When financially preparing to welcome a new baby, it’s also a good idea to estimate how much prenatal and delivery costs will run you. Exact amounts will vary by state, insurance provider, health conditions, and other factors. However, getting a close estimate will help you prepare for the price tag and avoid sticker shock when you have plenty of other things to worry about.
Consider contacting your health insurance company and inquiring about:
- Upfront costs such as co-pays, deductibles, and other out-of-pocket expenses.
- If your spouse has different insurance than you, research which is the best option to add the child to after birth.
Create or Update Your Estate Plan
While no one wants to think about their death when preparing to bring a new life into this world, it’s best to be prepared. If you don’t already have a will, create one and ensure it reflects your wishes. If you already have an existing will, update it to reflect your new family. You can also designate someone to care for your child should something happen to you in your will.
While you’re in the official legal mindset, it’s not a bad idea to go ahead and review your life insurance policies and make updates where needed. Once your child has officially arrived, you can designate them as a beneficiary on your life insurance policy, investments, and other accounts.
How Much Should I Save?
Becoming a parent is a joyous occasion and will change your life for the better in so many ways. You want to give your baby the best life, and part of that is your ability to provide for all their needs. Saving money is a crucial step but can often feel challenging.
Review your existing budget and look for areas to cut back. It’s always better to save more than you need than to not save enough. If you find that you put too much aside for the baby’s initial needs, you can also transfer that back to your normal savings or retirement accounts.
Remember, new baby costs aren’t only limited to actual baby expenses. You’ll likely have unexpected medical bills, unplanned time off work, maternity leave, and more.
We’re Here to Help!
Welcoming a little one into your life is an incredible experience, but it also brings significant financial changes. By planning and saving ahead, you can reduce stress and focus on the joy of this new chapter. Organizing your finances before your baby arrives will not only help you manage the additional expenses but also allow you to start building a secure financial future for your child.
If you have any questions about setting up a savings account for your new baby or getting a head start on their college fund, we’re ready to help. Please stop by any of our convenient branch locations or call 800-782-4899 to speak with a team member today.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.