Getting Financially Ready for a Baby
If you’re about to welcome a baby to your family, this is an exciting time. It’s also one that can lead to quite a lot of anxiety, especially if this is your first child. While you’ll likely spend much of your time thinking about how you’re going to raise and look after your new child, it’s also important to make sure you’re financially prepared for your new addition.
There are a lot of costs associated with raising a child, from diapers to food and clothing to childcare and much more. It’s natural to feel concerned about these expenses, but with some thought and planning you can prepare yourself and deal with the financial impact of having a child. Here are some tips:
Know Where You Stand
Before the baby arrives, it’s important to understand your financial situation. You’ll want to know all the details about your net worth, your income, and your debts. The more you understand about your finances and the more organized your financial life is, the easier it will be to manage your money.
Pay Down Debt First
Babies cost money. If you already have a lot of debt, the baby could make this situation worse. As soon as you find out that a baby is coming, you should focus on paying off your debt as quickly as possible. The sooner you do it, the better. The first step is to fully understand what you owe. Write down a list of your creditors, how much you owe them, and when you need to make your monthly payments. Then look at your budget and see where you can make cuts so you can pay off your debts more quickly.
Not only will paying down your debt make it financially easier to live with a baby, but it will make it significantly less stressful as well. You’ll have enough to worry about with the new addition that you won’t want to also worry about debt.
Build an Emergency Fund
An emergency fund is critical for everyone, and it’s especially important for those who are about to welcome a baby to their family. This is because you never know what you can expect from life. Your car could break down, an appliance could need to be replaced, someone could get sick and require treatment, or your partner could lose their job. If you don’t have anything saved for emergencies, you won’t have much choice other than to go into debt to deal with these unexpected costs.
For most people, it makes sense to have an emergency fund of at least six months of expenses. This means you should have enough to live off of your savings for six months, in case something happens.
If you don’t have this much saved, putting together a fund of this size can seem intimidating. However, no one expects you to save this amount all at once. Instead, start putting a small amount aside each month. Modify your monthly budget as you go so you can gradually increase how much you’re saving until you’ve reached your goal.
It’s a good idea to keep your emergency fund in a different account (or even in a different bank entirely) than your monthly spending more so you won’t be tempted to dip into it for non-emergency expenses. Remember, this fund should be for unexpected emergencies only.
Prepare for Time Off
Depending on where you live, there might be maternity and/or paternity leave assistance available from the government. Your employer or your insurance company may provide some sort of financial support as well. However, even if both of these things are true, you likely won’t be able to replace all of the income you would have earned while working. This means you’ll need to have a plan for how you’re going to live off a reduced income. You’ll also need to figure out how much time you’ll be taking off work, as this will affect your financial situation.
The first step is to determine how much you will have coming in while you’re taking time away from work. Once you know how much you’ll have, it’s time to sit down and prepare a new budget. See where you can make cuts and how you can reduce your spending so that you can live off your new income. The earlier you start planning, the more time you’ll have to save up for a future, which can make it easier to manage on a reduced income.