Congratulations! You’ve just gotten the positive pregnancy test results and you’re very excited—and nervous. Or maybe you’re a few months along, and the mild panic is growing right along with the baby bump. Regardless, a baby means big changes, and some of those changes bring many new expenses. How will you pay for it all?
Whether you’re only thinking about having a baby, or your due date is fast approaching, there’s no need to stress about finances. By preparing today, you can learn to cover these new expenses without falling into debt.
Here are some steps you can take to prepare financially for a new baby:
Pay down debt
There’s more than just a nursery to set up before your baby’s arrival. You’ll need to get your finances in order, too, to make it easier to manage new expenses and prepare for your child’s future. If this involves getting rid of a mountain of debt, you can choose between these two debt-kicking plans:
The snowball method. This involves paying down your smallest debt balance first. Once it’s paid off, move to the next-smallest debt, “snowballing” the payment from your previous debt into this one until it’s paid off, and repeating until you’re completely debt-free.
The avalanche method. This involves maximizing payments toward the debt with the highest interest rate and then moving on to the one with the second-highest interest rate until all debts are paid off.
Adjust your monthly budget
Babies don’t come cheap. When your little one arrives, you’ll need to spring for baby gear and furniture, a new wardrobe, diapers, and maybe child care too. The USDA estimates that parents can expect to pay between $15,000 and $17,000 a year raising a child. Most of these expenses will be ongoing, and it’s best to make room in your budget for these new items before the baby is born. Spend some time reviewing your monthly budget to look for ways to cut back on spending and give you that wiggle room to cover baby-related expenses.
Set up a baby account
All those baby expenses can be overwhelming, but if you break them down, they’ll be easier to manage. You can do this by putting away some money for baby costs as soon as you plan on having a baby or find out you’re expecting. Consider setting up a new savings account at Redwood Credit Union for all baby expenses to keep this money separate from other savings. You may also want to automate these savings by setting up a monthly transfer from your payroll or checking account to your “baby account.”
Estimate prenatal care and delivery costs
While exact amounts vary by insurance provider, prenatal care and delivery can cost thousands of dollars. This includes out-of-pocket expenses, co-pays, and insurance deductibles. Be sure to prepare for these expenses by saving up for them or by allocating a large windfall, such as a tax refund or generous work bonus, to be used for paying for prenatal care and delivery.
Start saving for college
Hard as it may be to believe, your little one will one day be all grown up and ready to go to college. With college tuition now averaging more than $41,000 at private colleges, $11,000 for state residents at public colleges and nearly $27,000 for out-of-state students at state schools, according to data reported by U.S. News and World Report, this can mean paying a small fortune to give your child an education. In addition to spreading the costs over nearly two decades, starting to save for your child’s college education now will give those savings the best chance at growth.
No one wants to think about their own death when preparing for a birth, but writing a will—and purchasing life insurance if you haven’t already done so—can be the best gift for your child in case the unthinkable happens.
Welcoming a new baby is a life-altering experience and can mean big changes for your finances. Follow our tips to ensure you’re financially prepared for your new baby’s arrival.