Having a child is a defining moment in everyone’s life. And as with all major life changes, it is vital to have a plan and be aware of the financial implications.
This post aims to help new parents become more financially savvy as they nurture their new baby.
Here are a few concrete steps to consider.
1) Maximize Employer Benefits
Depending on your employment situation, you may need to change your benefits enrollment and tax withholding.
- Add your child to medical insurance.
- Consider increasing contributions to any Flex Spending Accounts (FSA) you or your partner may have.
- If you have access to a Dependent Care FSA, start funding if you plan to hire professional childcare.
- Update your withholding forms for federal and any state income tax.
The amount of hard-earned dollars withheld and sent to the government to cover income tax is determined by the W-4 form you filled out when you started work. By increasing the number of dependents claimed (since you now have a child), you may qualify for lower withholding. Lower withholding means more take-home pay.
Furthermore, if you are single, a child may qualify you to file taxes as “head of household,” which may further reduce income tax withholding (assuming you pay at least 50% of the child’s expenses).
2) Protect the Future
None of us likes to think about our own demise. But you now need to think about providing for your child in the unlikely event that you and your spouse die.
- Consider getting life insurance policies for you and your partner. Consider policies with enough benefits to cover expenses until your children are old enough to be self-sufficient (e.g., high school graduation or through college).
- Draft a will naming a guardian for your children. Depending on the complexity of your situation, you may be able to use a software program or might want to hire an attorney to draft the documents.
3) Simplify Your Life
All new parents quickly learn that time is suddenly a scarce commodity. Here are some ideas my wife and I used to simplify our financial life:
- Consolidate accounts (savings, checking, 401(k)s, brokerage).
- Reduce the number of credit/debit cards used (and hence number of bills to remember to pay).
- Pay off any consumer debt or small student loans.
- Use an automated online personal finance tool (e.g., Mint.com or Personal Capital) or download data instead of entering it by hand (if using Quicken).
- Set up online or automatic bill pay for recurring expenses (utilities, cell phone, mortgage, etc.).
By acting on these few basic ideas you can reduce the burden of dealing with your finances, freeing up time to spend with your amazing child.
Share Your Thoughts