Long before you first cross the threshold of your home with your new baby, there’s so much to think about. Financial planning can fall by the wayside as survival mode kicks in for many new parents, but you can really save yourself a lot of stress by paying attention to finances now. The tips below can help you with preparation.
Know Your Tax Situation
If there’s one thing you don’t want to happen while you’re trying to adjust to the financial reality of a new baby, it’s getting hit with a tax surprise. If you’re newly married as well, your tax situation might have changed. However, even if this isn’t the case, you should be aware that the Internal Revenue Service makes new announcements each year about credits, deductions, and tax brackets. These are generally adjusted for inflation, meaning that if you’ve had a cost-of-living increase, your finances will probably stay the same.
In 2023, the upper limit of tax brackets has increased compared to 2022, but you probably won’t pay more in taxes if your income has stayed the same or gone up more slowly than inflation. If you do get a larger-than-expected refund, you might want to consider investing in it. Real estate is a reasonably safe investment, and you don’t even necessarily have to buy an entire property to profit from it. You may be able to purchase shares of a property or invest through your retirement account.
Make a Year’s Budget
You’ll sleep more peacefully if you can grab any sleep at all as a new parent if you have a rough budget for the year ahead. Try to estimate the expenses you’ll face in your baby’s first year, including childcare costs. This can help reduce the vague apprehension that not really knowing what to expect financially can instill in you.
You may then want to look to the longer term and consider starting a college fund for your child. Depending on the type of fund, this could be something that other family members could contribute to as well.
Update Insurance
There are so many different types of insurance policies to spend time and money on, but some are more essential than others. How does your health, disability, and life insurance look? Is it time for an update? When it comes to life insurance, whether you choose a whole life or term policy, make sure that you estimate how much money your child will need before they become an adult when figuring out how much coverage to buy. In addition, make sure you fully understand the rules for adding your child to your health insurance coverage, including the deadline for doing it.
Update Estate Planning Documents
Life insurance is one element of estate planning but not the whole story. With a will, you can identify who you would want as your child’s guardian. Since minor children cannot inherit property, you may also want to create a trust for your child’s support and appoint a trustee to manage it.
Since many people aren’t mature enough at 18 to handle large sums of money, a trust can also be useful for including specifications about when the money in it will be distributed, such as on reaching a certain age or milestones.
