The first year of parenting can be overwhelming, but you should still check these tasks off your financial checklist.
Published July 12, 2021|7 min read
It can be hard to focus on anything other than your baby’s daily needs during the first year of their life.
Around 45% of parents say they were not financially prepared to have a child, according to Policygenius’ 2021 Parents & Money survey. Most parents will budget for immediate expenses like diapers, a car seat and a crib, said Chelsea Brennan, founder of Smart Money Mamas.
“The easy things to think about during the first year of your baby's life are the stuff your baby needs, but there's some things that parents forget about,” she said.
Here are some less obvious money moves that can protect your baby’s financial security long after they’re out of diapers.
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You’ve likely planned time off immediately after your baby is born. But whether you plan your parental leave through your state or your employer, you can usually take family leave any time during your baby’s first year. You’ll want to plan out those dates with your partner and employer if and when you’re going to take that time.
If you’re planning your leave through your employer, review your company’s benefits package and follow up with your human resources department if you have any questions about going back to work for a few months, then taking off for a few months. Make note of how many days you and your partner have paid time off and any requirements attached to it. Many state programs won’t give you your full salary if you take parental leave, so you’ll need to account for that shortfall in your budget. If you don’t have fully paid leave or need more time than what’s provided, you’ll need to start saving for any extra time off, said Brennan.
You may have discussed your potential child care needs before your baby was born, but once you meet your child you’ll be able to gauge how much help you’ll really need. Paying for child care can be one of the most expensive parts of being a parent. In 2020, more than half of families (57%) spent $10,000 on child care expenses and 59% plan to spend more than that in 2021, according to a 2021 Care.com survey.
“I think that every parent, no matter how often we hear child care is expensive, has a little bit of sticker shock the first time we see that price,” said Brennan.
Before hiring help, you’ll want to estimate how much time you, your partner, and your family can dedicate to caring for your child. You’ll want to talk openly with your spouse and if remote work is an option or if one of you plans to stop working entirely. You’ll also want to know if your parents or in-laws can help out. Even with one spouse at home and your family’s help, you may need to consider a part-time or full-time nanny.
One way to save for child care expenses is a dependent care flexible savings account, which allows you to contribute tax-free dollars and use that money for qualified child care expenses, said Matt Becker, certified financial planner and founder of Mom and Dad Money.
One of the biggest costs parents face is a baby’s medical expenses, said Brennan. Even if you have insurance, it’s going to cost money to deliver your baby and take care of their medical needs after birth. “If sometime in the first year your kid gets a cold and you have to go to a doctor's visit, that’s going to have an expense related to it,” said Brennan.
You have at least 30 days to add your baby to your health care after they’re born, but some providers may give you more time. For example, special enrollment periods for plans on healthcare.gov last up to 60 days.
Familiarize yourself with what you can get for free. Health insurance plans cover preventive care for newborns. That can include autism screenings, hearing and vision tests, BMI measurements, and immunizations. You can also get breastfeeding benefits, like covering the cost of breast pumps.
It can catch parents off guard to learn that your baby gets their own deductible when they’re placed on an insurance plan, said Brennan. “Which means if your baby has sick visits or your baby's in the NICU, even if you've already maxed out your individual deductible as the mom, your child is going to have their own deductible as well.”
If you don’t already have a health savings account, now’s the time to open one if you can (only plans with high deductibles are eligible for HSAs). Savings contributions made to HSA are tax advantaged and can be used for qualifying medical costs, like your baby’s deductible or medical emergency.
Getting life insurance will ensure your baby is financially secure in case anything happens to you or your partner, Brennan said.
“You are now responsible for another human. One of the main uses of life insurance in my opinion, is protecting your dependents whether or not you're there,” said Brennan.
The type of policy you’ll need will depend on your family situation. When you’re working with an insurance adviser, it’s important to let them know your current family size and if you’re planning on having more children down the road, said Elia Weg, certified financial planner and life insurance expert for Policygenius. Having that dialogue with your agent can help you get enough coverage the first time around, without under- or over-insuring yourself, he said. The option to purchase more life insurance is not always available as you age due to health or other unforeseen life circumstances.
With an estate plan, you can outline your end-of-life preferences. You’ll be able to dictate how your assets will be distributed when you die, name your child’s guardian and dictate a financial power of attorney and medical power of attorney.
Even if you don’t have many assets when your child is born, make a plan to protect both your child and whatever assets you have. This will not only give you peace of mind, but a foundation to continue growing your assets, said Brennan. “ [An estate plan] doesn't have to be expensive and it doesn't have to be time consuming. ”
Here are the two main components of an estate plan.
A will is a legal document detailing how your financial assets should be divided when you die, including life insurance proceeds. It can also name a guardian for any children under 18.
A trust allows you to get more specific with your assets, like your checking and savings account, brokerage account and house. When you die, all of those assets will be passed on according to your wishes without involving probate courts, which can be time consuming.
Here’s our complete guide to estate planning.
Having student loans can be a massive financial burden for young adults. As of June 2021, the average borrower has $39,351 in student debt, according to educationdata.org. Educational expenses top parent’s list of budget busters according to Policygenius’ 2021 Parents and Money survey: Nearly one in four (23%) say it’s their biggest budget strain. You can get ahead of your child’s education needs with a 529 college savings plan.
Brennan recommends starting a 529 plan right away to take advantage of tax-free growth. You can protect the fund from future financial aid considerations by making the plan a parent asset instead of a child asset, she added.
“You can look up if your state has tax benefits for using their in-state plan, but if they don't, you can actually use any state's 529 plan and choose the one with the lowest fees,” she said. She recommends 529 plans for New York, Illinois or Nevada because of their low fees, but check with a financial adviser to see which one fits your needs best. Some states offer greater benefits to residents. “It’s a great investment option that lets you start building that future for your child.”
However, Becker and Brennan agree you should have your other financial priorities in check before you start saving for your child’s future education needs. They recommend focusing on other goals first, like building an emergency fund, paying off debt, getting insurance, and saving for retirement.
“If you’re not doing those things, then they’re not going to happen,” Becker said. “That can put you in a better position to pay for college because your future is secure, which means you can help your kids without jeopardizing your own future.”
Image: Getty | Inti St Clair
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