Marc A. Hebert's Money Sense: And baby makes three ... what the addition means for financesBy MARC A. HEBERT
May 19. 2017 6:29PM
So you are going to have or adopt a baby. Congratulations! Being a parent can be both a rewarding and scary experience. Everything changes, including your finances. The U.S. Department of Agriculture estimates that a middle-income couple with two children will spend an average of $233,610 to raise a child born in 2015 from birth through age 17, with no college cost included.
To help you prepare financially, here are a few things to think about.
Review your budget, starting with maternity leave. Have a plan to meet these costs, as you will not be working. A baby needs a lot of things to help keep life safe and happy, such as a crib, stroller and car seat. These items will add up and could cost well over $1,000. This is an area to do some homework. You will want to buy quality items, but at a reasonable cost. Check discount stores and the internet. There may be good used items at yard sales or flea markets, but make sure they meet today's safety standards. Friends and family might provide some hand-me downs or shower gifts.
While a crib, stroller and car seat are basically one-shot deals, other items are ongoing. Consider the extra grocery items like baby formula, food and diapers. Your child also will need clothing. There will be medical costs not covered by insurance. Child care is a big-ticket item, so be sure to factor this in. Review your monthly expenses to include these extras, and if your budget seems tight, now is the time to see what you can cut back on.
You will want to check on your emergency reserve. Have a rainy day fund for the unexpected items.
Review your health insurance coverage. Determine your maternity coverage and what the costs are to cover the baby after birth. Premiums and out-of-pocket expenses should be included. There will be trips to the pediatrician and other health care costs. These can add up over time.
Review your disability insurance, as this is what will replace some of your income should you be unable to work.
On the topic of insurance, now is the time to review your life insurance needs. No one likes to think of tragedies happening, but it is best to protect your family's financial security if something unexpected occurs. The proceeds can be used to pay off debts, support your family and even for college funding. An insurance agent or financial planner can help you decide how much coverage you need and how much it will cost to obtain.
Another way to prepare for an unexpected tragedy is to update your estate planning. A will is the place to name a guardian and alternate guardian for your child if both you and your spouse die at the same time. Other documents to prepare or consider are health care proxies, durable powers of attorneys, and trusts. An estate planning attorney will help you decide what is appropriate for your situation.
We mentioned education earlier. College is expensive and starting your savings while the child is young is the best way to prepare.
You will need to consider the impact a child will have on your income taxes. You might be eligible for an extra exemption, child tax credit or the credit for child and dependent care. A tax professional will be able to help with these.
On a final note, don't cease to fund your retirement. Saving even a little bit each paycheck will help you be financially secure when retirement happens and you are an empty nester.
Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at email@example.com. Your question and his response might appear in a future column.