The following is a checklist to get started in financial planning for the changes that come with baby.
Create a Budget
Babies are expensive! To help you estimate costs for baby in the first year, BabyCenter has an excellent First-Year Baby Costs Calculator.
You can then use these expense estimates to create a budget using budget software or Excel. Don’t forget to factor in any loss of income, due to parental leave. For a free, web-based personal financial tool that plugs into your banks, credit cards, investments, and retirement accounts, try Mint.com or the Mint app.
- Mint: Link to How Mint Works
- Excel Budget Template: Family Monthly Budget Template in Excel
Establish an Emergency Fund
Set aside at least three months living expenses for emergencies and then add three months more, if you can.
Add Your Child to All Health and Life Policies
Add your child to your life or health insurance policies. Typically, you have 30 days to do this with your employer after a major life change.
Determine Your Best Child Care Options (recoup costs with an FSA or by taking the childcare credit at tax time)
3 Major Tax Credits for Parents:
The Child Tax Credit
The Child and Dependent Care Tax Credit
The Earned Income Tax Credit
Research childcare options based on income and expenses using an online Child Care Cost Calculator. Care.com’s Cost of Child Care calculator provides the average cost of care for a child(ren), depending on type of care and your zip code. Recoup 20% to 35% of the cost by either enrolling in a Flexible Spending Account (FSA) or taking the childcare credit at tax time.
- The Child and Dependent Care Tax Credit: The Child and Dependent Care Credit can get you 20% to 35% of up to $3,000 of child care or similar costs for a child under 13 (up to $6,000 of expenses for two or more dependents).
- Dependent Care FSA (DCFSA): Inquire whether your employer offers a Flexible Savings Account (FSA) to be used for paying for child care with before-tax dollars.
Purchase or Increase Your Life Insurance
Consider purchasing life insurance for you and your spouse or increase current coverage. How much life insurance do you need? Try this calculator on lifehappens.org.
As a younger new parent, I would also consider purchasing a term insurance policy, which is cheaper than permanent insurance and has a death benefit without an investment account attached. A 20- or 30-year premium term policy, which is convertible to permanent insurance in the future, is adequate. With a routine physical and medical questionnaire, you can lock in rates for the next 20 to 30 years.
Check Your Disability Insurance
Consider purchasing disability insurance from your employer. While supporting your child, you will need to guarantee income if you can’t work.
Make a Will
You need a will to appoint a guardian for your child, and you do not need to know the name of your child to make a will.
What happens if I do not have a will?
Dying without a will means that you have no say about who gets your bank accounts, real estate, jewelry, cars, and other property after you die. Without a will, you die “intestate,” meaning that the intestacy laws of the state where you reside will determine how your property is distributed upon your death. Typically, assets will be tied up in what is called “probate,” an expensive and lengthy legal process that could last months or years, depending on the complexity of the estate.
If you and your spouse die without a will, the state will choose a guardian for your child and decide how your money and property is to be divided. If you have family assets that you would like to be passed directly to a child, and not to your spouse, a trust must be established.
Start a College Fund
Get started on college savings. Set up a fund that you, grandparents, and relatives can contribute to early on, if budget allows. For a baby born in 2019, the College Board college cost calculator estimates that in 18 years, the cost of tuition, fees, room, and board for four years of private college will add up to $633,643 (using a 7% cost inflation rate). The cost of out-of-state public college will amount to $509,823, and in-state public college will cost $321,849.
Note: The national average tuition cost has inflated 6-7% each year for the past 30 years. Total cost estimates based on national averages are calculated by the College Board’s Trends in Pricing. To update costs, visit http://www.collegesavings.org/collegeCostCalculator.aspx.
Ask for a Raise
Don’t be afraid to ask for a salary raise. Despite advancements in education for women, female full-time workers still make 77 cents for every dollar earned by men, a wage gap of 23%.65 Some of that gap is likely explained by differences in college majors and types of jobs, such as science, technology, engineering, and math vs. lower paying jobs in education and healthcare. Yet outright discrimination in pay, promotions, and hiring is also a likely contributor. When negotiating your salary, consider these tips:
- Keep a detailed record of your specific achievements and accomplishments.
- Build a business case for how you could potentially affect the bottom line of your business.
- Know the market value of your salary for your region.
- Know your company’s compensation policies.
- Make sure the timing is right: you have waited a year or so to prove yourself, don’t time it with your maternity leave discussion, etc.
- Initiate a meeting and then let your employer talk first, or risk naming a price lower than a potential offer.
- Don’t say “yes” immediately to an offer.
- Don’t settle for “no.” If your salary is non-negotiable, perhaps ask for other benefits, such as a bonus, vacation time, flextime at home, etc.
- Be polite and professional, but be bold. If you really want something, you have to ask.