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A 9-Month Money Guide for Expectant Parents

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

There’s a lot to expect when you’re expecting — not the least of which is a dramatic uptick in expenses. Children are a blessing, to be sure, but any parent will tell you those blessings aren’t cheap. According to the latest data from the USDA, the cost of raising a child to adulthood tops $230,000.

You’ll certainly have more than your share of things to think about during the nine months leading up to the birth of your new family member, and budgeting might sound like just one more chore. But tackling monetary issues up front can help dissolve some of the overwhelm and stress, which, after all, will only increase once you’re also dealing with midnight feedings and diaper changes.

Here’s an easy month-by-month breakdown to simplify your growing family’s finances.

Month one: budget

A budget is critical no matter where you are in your life cycle, whether you’re a singleton just out of college or a married couple with an established family.

But for those just about to welcome a baby into the world, the flow of money is sure to change — which means it might be time to take a second (or third) look at your ledger. You’ll want to adjust your current categories (like groceries) to include new recurring expenses (like diapers). Kids also grow out of clothes like wildfire.

Budgeting can seem intimidating for those who’ve never done it, but there are a wealth of free budgeting apps that can help you get started or improve what you’ve already got.

Month two: augment your emergency fund

Keeping an accessible cash cushion is another money move that’s a good idea no matter how big or small your family may be. But once kids enter the picture, it’s that much more important.

You may want to adjust your current emergency fund from a three-month supply of cash to one that could cover six months, including the additional expenses Junior will incur.

Early on in the pregnancy is a great time to get aggressive with saving, since you’ve still got time before there’s an extra mouth to feed. Moving your cash into a high-yield savings account can also help you build your emergency fund faster.

Month three: plan for health insurance

Hopefully, you’ve already got yourself covered as far as health insurance is concerned — after all, giving birth is a major medical procedure. But the delivery is just the beginning; your kiddo is going to need their own insurance, too.

The Affordable Care Act requires employers with 50 or more full-time employees to offer those employees health care, and those plans are also required to cover dependent children until the age of 26. However, if you are not insured through a workplace, you may be eligible for coverage through the federal Children’s Health Insurance Program.

Health Savings Accounts, or HSAs, are another option to consider when you’re expanding your family. These incentivized accounts allow you to use untaxed dollars to pay for medical expenses, including copays and deductibles. However, you’ll need to enroll in a High-Deductible Health Plan, or HDHP, in order to be eligible. There are also limits to how much you can contribute to your HSA on an annual basis. For 2020, you can contribute up to $3,550 for an individual and $7,100 for family coverage.

Month four: tackle parental leave

Although U.S. parents are guaranteed up to 12 weeks of unpaid time off for parental leave through the 1993 Family and Medical Leave Act (FMLA), paid parental leave is a far rarer beast — and those who work for small firms with fewer than 50 full-time employees might not even be covered under FMLA.

You definitely want to figure out your employer’s policy on parental leave sooner rather than later, whether that means planning for a gap in your income or just getting your ducks in a row at work. Fortunately, a few states do legally require employers to offer paid parental leave, and other states are considering such legislation for the future.

Month five: figure out childcare

Even if your workplace does offer parental leave, you’re likely planning to go back to work someday, which means someone’s going to have to be responsible for your bundle of joy during the day.

With average American childcare costs ranging from about $5,000 to over $10,000 annually (depending on which state you’re in), you’re talking about basically paying the equivalent of rent each month for your babysitter. Make room for that expense before the baby is born. If possible, shop around to find the most affordable, yet reliable, option — it could make a major difference down the line.

One vehicle for accumulating the savings is a dependent care flexible savings account (FSA), or DCFSA. Typically offered by your employer, these tax-benefitted accounts allow you to use pre-tax dollars to pay for qualified out-of-pocket expenses related to caring for a dependent, including preschool, after-school programs, day summer camp and daycare.

Month six: get ahead of education

As expensive as a newborn is, that cost grows exponentially by the time they reach 18 — thanks in large part to one particularly hefty bill, which is the cost of a college education.

While not every parent plans on paying their childrens’ way through college, if you do, opening a 529 or Roth IRA could help. You might also want to earmark state-sponsored programs that can help ease costs, like Florida’s Bright Futures Scholarship.

Month seven: prepare for tax time

The third trimester is in full swing, and chances are taxes are about the last thing you want to think about — even if it’s April.

But having a kid does change your tax situation, and often in a positive way. For instance, you may be eligible to claim the child tax credit, which can reduce your tax burden by up to $2,000 per child under 17.

You’ll also be able to claim your child as a dependent, which may qualify you for an exemption decreasing the amount of your income subject to taxation in the first place. Finding some extra money in your taxes is never a bad thing — especially two months before you have a baby!

Month eight: consider life insurance

It might not be something you particularly want to think about, but planning for the worst-case future scenario is an important step toward living in a peace-filled now.

Depending on your financial scenario, it might make sense to consider purchasing life insurance for your baby. Some people consider life insurance just another savings vehicle, which might eventually cover costs like college or a home down payment.

But financial planners warn these coverages may be unnecessary — and overpriced. If you do opt to buy a plan, give yourself time to find one that won’t lead to you paying more than you need for insurance.

Month nine: last-minute essentials

As the big day draws near, chances are you’ll be pretty busy. But fortunately, if you’ve followed this guide, you’ll also be in pretty good shape money-wise.

That frees you up to focus on bringing new life into the world and making sure you’re completely ready, stocking your house with the necessities, like diapers and bottles and toys and onesies, you’ve so carefully budgeted for.

Then, when the time comes, head to the hospital (or wherever the delivery is to take place) with as much serenity as possible. Your money is covered, so you can focus on your family — which is the whole point of getting your finances in order in the first place.

Post-delivery

Once baby is home safe and snuggled in their bassinet, the parents’ work is just beginning. Even with as much forethought as possible, you’ll still have some money-related tasks to tackle after the delivery, such as:

  • Creating an estate plan. You’ve tackled life insurance, but you’ll also want to make sure you create or update wills, powers of attorneys or trusts now that your baby’s in the world.
  • Continuing to fund your retirement. It’s easy to get wrapped up in your child’s expenses, but don’t forget to save for your own retirement so you can take advantage of compound interest.
  • Updating your listed beneficiary. If a parent or other family member wants to name the new child as a beneficiary to an insurance policy or investment account, now’s a good time to make the change.

Oh, and don’t forget to get at least a little bit of sleep every once in a while.

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Think Money Can’t Buy Happiness? Think Again

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They say money can’t buy happiness, but in a capitalist society, you do need at least some of it to get by. According to an article published in scientific journal Nature Human Behaviour, we should be shooting for a specific number when searching for emotional well-being — a surprisingly low figure, starting at about $60,000 and ranging to $95,000 per year, depending on global location.

Research also shows that spending money on experiences rather than material objects leads to more overall satisfaction. More specifically, we’ve learned that spending money on *certain* goods and services is even more strongly linked to well-being than income level.

In personal finance writing, we spend so much time talking about what you shouldn’t spend money on. Instead, here are five purchases that can actually boost your overall happiness.

Paying someone to do the dirty work

Although it doesn’t always feel like it, money is a renewable resource: you can always make more of it.

But the same can’t be said for time; we all only have 24 hours in the day.

You can, however, buy yourself more time by paying someone to do routine housework… and research shows that doing so can, indeed, make you happier.

Harvard Business School researchers surveyed over 6,000 American and European earners on how often they outsourced chores like cooking and cleaning. They found that those who engaged in “buying time” in this way experienced a statistically significant increase in happiness.

They also performed an experiment in which they gave participants $40 to spend on either time-saving services or material objects. Those in the former category reported higher levels of satisfaction thereafter.

Even if hiring a full-time housekeeper isn’t in the budget, there are plenty of time-saving services that can be affordable when planned for, such as meal delivery services.

And keep in mind that housekeepers and other home service professionals can usually be hired on a one-time, rather than recurring, basis — so if you just need someone to help out during a particularly busy week, it might be a worthy investment.

Opting for experiences

Imagine you find a spare $50 in your coat pocket — a small, but totally unexpected, windfall.

You could spend it on a new pair of shoes or on tickets to a concert. Which choice would make you happier?

As mentioned above, much scientific research suggests that spending money on experiences rather than material possessions leads to higher long-term satisfaction. Although the shiny newness of objects fades, memories can last a lifetime, leading to “more enduring happiness,” said Amit Kumar, an assistant professor at the University of Texas at Austin, in his doctoral research at Cornell University.

However, opting to spend on experiences isn’t a foolproof metric for avoiding buyer’s regret. For one thing, not all experiences are pleasant or memorable (think: dashing out for lunch on a work break or getting an oil change), and in some cases, saving money may still be the better option.

Saving it up

Speaking of savings…

Although it might not count as “spending” money in the traditional sense of the word, funneling money into your savings account is still a way to allocate your funds.

And as it turns out, research shows that many consumers, and millennials in particular, experience more life satisfaction when they engage in “proactive financial strategies” — like saving some of it.

Given that money is one of the main sources of stress for Americans, it makes sense that padding your emergency savings cushion could lead to a greater sense of well-being. In fact, one report found that increasing savings by 10% had a greater impact on life satisfaction than being happily married, which is a pretty impressive statistic.

Investing in others

When we think about spending money, we typically think about ways we might spend it on ourselves. But some studies show that prosocial spending — money spent on others — can lead to more satisfaction.

According to an article by researchers Elizabeth Dunn, Lara Aknin and Michael Norton, the benefits of prosocial spending have been self-reported by adult survey respondents around the world, and are apparent even in toddlers.

There are many ways to engage in prosocial spending, whether it be in the personal sphere (giving gifts to friends and family) or the community (donating to charity). However, donating money to certain eligible organizations, like nonprofits and religious institutions, has the additional benefit of being tax-deductible.

However, it’s important to carefully vet the places you’re considering supporting to ensure your charitable donations go to the right place. Scams do exist, and accidentally gifting your money to a charlatan is unlikely to increase anybody’s happiness… except, of course, the scammer’s.

Going to school

Although money can’t buy happiness, it can buy more time in school… which can lead to increased happiness, even if you aren’t the type who loves the classroom.

For one thing, higher levels of education are correlated with better-paying jobs — which, as established above, is one ingredient in the recipe for life satisfaction.

But other research suggests that education in and of itself increases happiness, with one survey suggesting that graduates are better able to cope with challenging life events like divorce, illness and unemployment.

It’s important, however, to add the caveat that the same study found that the effect has diminishing returns: each successive level of schooling (undergraduate, postgraduate, doctorate, etc) added “a little less to the well-being score.” And if you can’t afford to go back to school out of pocket, or without taking out substantial debt, the weight of student loans might easily supercede any positive effects of the decision.

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How Behavioral Economics Can Impact Your Wallet

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We walk through the world feeling as though we’re in control of our actions. We make decisions for well-rationalized reasons, and sow the consequences, good or bad.

But human brains are pretty wild creatures. And unfortunately, they’re prone to some patterns that can lead to unwise choices, even if those choices seem like smart moves.

We can get some insight into these patterns — and, even more importantly, tactics to fight them — from the field of behavioral economics.

What is behavioral economics?

Behavioral economics is a hybrid discipline. It brings concepts of human psychology to the study of economic decision-making, which can help us learn why we tend to make the financial choices we do.

One of the most important and foundational findings of behavioral economics is the concept of “dual-process” thinking, which separates our behavioral motivations into two categories: System 1 and System 2.

System 1 thinking is the kind that doesn’t feel like thinking at all. It’s fast, instinctual and based on gut reactions. It’s implicit, whereas System 2 thinking is the slow, deliberate kind that actually undergirds rational decision-making.

The trouble comes because it can feel like we’re using our slow, rational second system when we’re really relying on the lizard-brain first. The human brain can essentially trick itself thanks to some built-in psychological tendencies that may have been protective from an evolutionary standpoint, but today can lead to costly decision-making errors.

Fortunately, by identifying these tendencies in your own psychology, it’s easier to counteract them with sounder, System 2 decision-making.

4 ways behavioral economics can impact your personal finances

Below are some of the most prevalent ways in which concepts from behavioral economics can have a real-life effect on your budget.

Temporal discounting

Would you rather have $100 today, or $150 a month from today?

Although the latter is obviously a more rational financial choice in the long run, most of us feel tempted by the instant gratification aspect of the former. Over a lifetime, constantly focusing on the present tense can make it difficult to build a robust financial future.

For instance, classic studies suggest that people are more likely to overspend because they’re less concerned about their future finances than about their current desires. That’s one reason it’s so easy to fall into credit card debt, for instance; you can buy what you want now and worry about the ramifications later.

Even more tellingly, this little psychological loophole isn’t across-the-board consistent: It’s mediated by mood. Research has found that people may be less prone to temporal discounting — and more willing to wait for the better reward down the line — when they’re happier.

Mental accounting

Money is money, of course — but thanks to the human penchant for categorization, it’s not always that simple in our minds. According to the concept of mental accounting, we assign value in relative terms, even when that value should be fixed.

How might that play out in your finances? Well, think of how you respond to news of a windfall, like a Christmas bonus or a hefty tax refund check. Many of us see these funds as “fun money,” and spend it more superfluously than we do with our regular paycheck. Just because it’s a bonus doesn’t mean it won’t grow if you stick it in your investment account.

Mental accounting may also be the reason it feels less painful to spend money on a credit card than in cash, and thus cause you to spend more of it. It’s also probably one of the factors that lead many lottery winners to financial ruin. Although the money was unexpected, it isn’t actually endless, and spending it without a plan can quickly spell bankruptcy.

Framing

When it comes to making choices, the way those choices are presented to us can make a serious difference. For instance, it sounds a whole lot better to say something’s discounted to 10% off than to say it still requires 90% of the purchase price.

How a price is framed can impact whether you process a purchase as a loss or a gain — many times in ways that aren’t intuitive. For instance, in some cases, an item may actually sell better when it’s set at a higher price, since that high price lends the product a sheen of luxury compared with its competitors.

Anchoring

Along with the framing of a product itself, the cognitive bias of anchoring can change how you view its final purchase price. Anchoring refers to the human tendency to overrely on the first piece of information we receive — and to prioritize comparison over calculation.

A prime example of anchoring: the car dealership, where just about everyone knows the sticker price is a markup. We expect to negotiate the costs down, but seeing that higher figure makes us feel better about our “discounted” final price, even though we’re likely still paying more than the car is worth, particularly if we’re financing the purchase.

How to battle against your nature

So now that you know your brain has some not-so-great tricks up its sleeve, what tools can you bring to the table to combat them?

According to both financial planners and psychologists focused on behavioral finances, the most important thing is to slow down and think seriously about why you’re about to make the financial decision or purchase you’re considering. That way, you’ll be able to utilize your actual rational decision-making mind and engage in System 2 thinking.

Once you’re intentionally deliberating, rather than just responding emotionally, you can take the time to think your choices through to their ultimate outcomes — which is particularly important when considering large and emotionally loaded decisions.

Take, for instance, the purchase of a home. Although it’s easy to get caught up in imagining which bedrooms your children will sleep in and where they’ll do their homework, it’s good financial practice to come back down to earth and calculate the entire purchase price of the house including mortgage interest over time. Although the bank is required to disclose that information to you, you might not see it until closing, at which point the decision-making part of the process has already come and gone.

By learning to take a step back from the cues — or “nudges” — being used to impact your choice-making process, you can take control of that process back. Then, you can rest assured that your financial decisions are just that: your decisions.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.