Six ways to navigate a tough economy as a new parent, from the National Endowment for Financial Education
Starting a family can be challenging financially, and having a baby during a difficult economic climate can cause even more stress on your finances.
But there’s no need to panic. Yes, there are significant expenses in store. However, if you plan ahead and use your creativity when it comes to actual saving and financial decision-making, you can do a lot better than you might expect.
Here are six financial planning tips for you and your new family.
1 Distinguish Needs From Wants
Your budget is changing, so it’s time to make some cuts. When it comes to “wants,” such as an expanded cable package or a cutting-edge smart phone, ask yourself what each item is worth to you.
Almost everyone can cut back on entertainment. According to Bureau of Labor statistics, the average person spends $2,500 annually on dining out. By reducing how frequently you eat out even by a third, you can save more than $800 a year. And say you go to the movies every other week. At about $30 a couple for tickets (without popcorn or drinks), that’s $780 a year.
Regarding day-to-day expenses: Plan car trips around several errands to save gas. Clip coupons for items you already use. Put off upgrades like a new home or car until you get the hang of budgeting. Set up and contribute to an emergency fund for unexpected expenses.
2 Be Smart About Healthcare
Find out which maternity and wellbaby services your health insurance covers. Know your co-pays and deductibles, and how costs will change for a C-section or a longer hospital stay. Visit the hospital where you plan to deliver, and decide on a pediatrician. Ask about itemized costs of maternity stays so you can decline certain extras (private rooms usually cost more).
If you and your partner have separate insurance, consider combining coverage under a family plan. If you do not have health insurance, sign up immediately. According to the American Pregnancy Association, delivery alone for a low-risk pregnancy ranges from $6,000 to $8,000. Add your baby to your insurance plan right after the birth.
3 Know Your Benefit Options
The Family Medical and Leave Act (FMLA) guarantees parents 12 weeks of unpaid time off with health benefits if they’ve logged at least 12 months on the job (or 1,250 hours during the last 12 months). FMLA does not apply to companies with fewer than 50 employees, but many small businesses offer time off for new parents. If you don’t have this option, bank your sick and vacation time for when the baby arrives.
Remember, job security is at a premium, so weigh the pros and cons of taking extended leave. Before leave begins, show your best work to your employer. Look for training and professional development opportunities to ensure stability when you are ready to return to work.
Most employers offer Flexible Spending, which allows you to set aside pre-tax income for health-related expenses not covered by insurance. Eyeglasses, some prescription medications and breast pumps are eligible expenses. Check IRS guidelines for covered items to estimate your annual contribution.
4 Address the To-Work-or-Not-To-Work Issue
Weigh the costs, convenience and your comfort level with various childcare options. Are family members/friends available to help? If one parent plans to stay home with the baby, make sure you can afford it. Live on one wage before the baby arrives to test your new budget. If you both plan to keep working, make sure your combined income is sufficient to justify childcare expenses. Consider the following: your desire to work vs. staying home; your hours, stress, location, and related costs such as gas, parking, wardrobe, dry cleaning, etc.
5 Make Long-Term Plans
With a baby, you need a stronger long-term safety net. Wage earners should have life and disability insurance, often beyond the coverage your employer offers. Draft a will that names guardians and designates beneficiaries.
Invest wisely. IRAs and 401(k) plans are top priority. Contribute regularly to a mix of safe, short-term options like savings accounts; and riskier, longer-term growth options, like stocks and bonds. Start a 529 savings plan for your baby’s college. These funds can be used for education only, so your savings focus should be on retirement.
6 Control Your Spending
With a baby on the way, many parents plunge into shopping mode — stocking up on clothes, furniture and other gear. Stop! Whether or not you’re expecting a baby shower, gifts are sure to be on their way.
Also, think secondhand. Other parents love to unload items they no longer need. Look online and at consignment/thrift stores for deals. Before buying a used item, verify it hasn’t been recalled (www.saferproducts.gov).
If you’re considering getting a used crib, in addition to checking for recalls, the Consumer Product Safety Commission recommends: a firm mattress that fits tightly into the crib; proper crib assembly, with no loose, missing or broken parts; slats with no more than 2 3/8 inches between them and no missing slats; no cutouts in the headboard/ footboard; no decorative knobs/corner
posts higher than 1/16 inch; no lead paint.
Buy one car seat with two bases, not two separate car seats (never get a used car seat). Think twice before buying a used breast pump, which may contain harmful bacteria.
Consider these other ways to save:
• Skip extras such as wipe warmers, fancy diaper bags or a changing table.
• Join a warehouse club to buy diapers and formula in bulk.
• Consider making your own baby food. It’s easy to do, and can save you a bundle.
• Ask your pediatrician and your hospital for coupons and samples.
For more on savings and budgeting tips, go to http://www.smartaboutmoney.org/. See the Life Transitions section.