When it comes to having kids, wouldn’t it be nice if all first-time parents could have their own personal financial advisor to help guide them through the intricacies of financially preparing for their little bundle of joy?
While it might not be possible for each set of parents to have their own personal advisor, it is possible to gather some general information — and we can help. We checked in with multiple finance experts and asked: “What’s the most important thing you would want first-time parents to know about finances when it comes to having kids?”
Here’s what they had to say.
Tip No. 1: “Add term life insurance before getting pregnant.”
Source: Sophia Bera, CFP®, founder of Gen Y Planning
The reasoning: Believe it or not, once you’re pregnant it could be harder to qualify for a preferred rate because they do a weight/height calculation that will factor into the amount you pay, says Bera. To that end, if you haven’t been able to get a policy before conceiving, signing up for a plan within the first few months of your pregnancy should be totally fine, too.
Tip No. 2: “Figure out a plan for paying your medical bills.”
Source: Ed Snyder, CFP®, ChFC, Oaktree Financial Advisors, Inc.
The reasoning: Even if you do have health insurance, chances are some of the tests and procedures you can opt for (like genetic testing, for example), may not be covered by your plan. At the very least, you should assume you’ll probably meet your out-of-pocket deductible. Luckily most providers will let you set up a monthly payment plan with no interest if you can’t pay the full amount, says Snyder. Consult with your health insurance about what is and isn’t covered, then chat with your doctor’s office to find out what options you have. (Check out this piece for five more ways to save on some of the biggest parenting expenses.)
Tip No. 3: “Plan for the pregnancy, as well as the baby.”
Source: Bellaria Jimenez, CFP®, Managing Director of MetLife Solutions Group
The reasoning: When considering having a baby, it’s important to plan for additional costs during the pregnancy, as well as the cost of caring for the baby, says Jimenez. If you have a good insurance plan, the cost of prenatal care might just mean the cost of co-payments, but without good insurance this can cost you thousands out of pocket (or even with it). On top of that, prenatal vitamins purchased over the counter can range from $10 to $20, and if you are like many moms-to-be, eating healthy and organic during pregnancy can mean an increase in monthly grocery bills, as well. Some other things to consider: The cost of an uncomplicated cesarean section was about $15,800 in 2008, and $9,600 for vaginal birth, according to WebMD. Many moms hold baby showers to prepare for the upcoming baby, but be smart about your gift registry to help save you money down the line. For example, requesting gift cards in lieu of gifts can assist you with purchasing diapers and formula if you choose not to breast-feed. There are subscription services and bulk purchases for baby items that help. Several websites also offer “cost of raising a child” calculators that can be helpful for planning. (For more on this aspect of financially planning for baby, check out this piece.)
Tip No. 4: “Sign up for your FSA.”
Source: Sophia Bera, CFP®, Founder of Gen Y Planning
The reasoning: Doing so will often allow you to use pretax dollars to pay for daycare costs.
Tip No. 5: “Sign up for your HSA.”
Source: Ed Snyder, CFP®, ChFC, Oaktree Financial Advisors, Inc.
The reasoning: We’ve already talked a little bit about healthcare costs, but if you have a high deductible health insurance plan, Snyder suggests pairing it with a Health Savings Account so that your medical expenses — and the baby’s — are tax-deductible. (Confused about the differences between an HSA and an FSA? Check out this piece.)
Tip No. 6: “Familiarize yourself with the tax laws.”
Source: Molly Stanifer, CFP®
The reasoning: Certain tax breaks could really help you out, especially that first year when you have the baby. The childcare tax credit, for example, allows you to use a credit to net against taxes you owe in a given year, says Stanifer. “The idea behind the credit is to offer parents with children aged 12 years or younger a little help so they are able to work. The amount of childcare expenses you can use toward the credit are limited to $3,000 per child, but no more than $6,000. After that the credit is limited by your income. Work with an advisor if you’re unsure exactly of how the laws work in your favor.”
Tip No. 7: “Use nicknames for your savings accounts.”
Source: Mark Thorndyke, CFP®, Managing Director, Wealth Management Advisor, Thorndyke Wealth Management Group, Merrill Lynch
The reasoning: It might sound silly, but assigning nicknames to savings accounts has actually proven a very effective way to save for defined goals, says Thorndyke. For example, when Thorndyke started nicknaming his own accounts with specific goals seven or eight years ago, he found that it provided him with a strong psychological motivation to continue to save. “Parents [I’ve seen] have defined goals as college, education, retirement, travel, emergency fund, vacation/second home, kids wedding, automobile, etc. Their children, on the other hand, have specific goals like college savings, checking, general savings.”
Tip No. 8: “Think twice before putting funds in a child’s name.”
Source: Cecilia Beach Brown, CFP®
The reasoning: Depending on where you live, you may have access to UTMA (Uniform Transfer to Minor Accounts) and UGMA (Uniform Gift to Minor Accounts). “These have long been used as a tool to keep taxes lower on account earnings, however, when the child reaches the age of majority for your state, they have full access to the funds,” says Brown. “You as a parent give up control. Weigh the actual tax benefits to you before putting funds in a child’s name — it might not be worth giving up control.”
Tip No. 9: “The new way to hire a babysitter could end up saving you tons of money.”
Source: Lynn Ballou, CFP®, Managing Partner and Board Ambassador for Ballou Plum Wealth Advisors
The reasoning: Babysitting co-ops have taken the country by storm, and for good reason. “A babysitting co-op can mean the difference between affording a night out or staying in,” says Ballou. The concept is simple. “Find parents whose values are in line with yours and alternate Saturday nights out.” Swapping babysitting duties with other parents means your child will have playmates, you’ll get to go out for free and you’ll be doing someone else a favor at some point as well. It’s a pretty great deal.