Everything in your life will change with the arrival of your first child. You may think you’re financially prepared now, but when the baby comes, you’ll have more bills and more financial situations to figure out. You also may feel completely unprepared, especially after talking with family and friends about the costs associated with a child which is also understandable. It’s an exciting chapter in your life that can also be filled with fear and anxiety.
If you are preparing for a child or recently had a baby, one of the best things you can do right now is get your finances in order. Here are five financial tips for first-time parents.
You should be sticking to the budgeting basics. Nerd Wallet recommends divvying up your income with the 50/30/20 approach. First, 50 percent is for needs such as household bills, minimum loan payments and expenses such as child care, diapers and formula. Next, 30 percent is for financial wants. Finally, 20 percent is for saving and payments on toxic debts, such as credit card debt.
This may not be the easiest to tackle to in the beginning, especially if your needs take up much more than 50 percent of your income. This is the goal you should be reaching for. Ultimately, you should be tracking your spending and trying to improve your budgeting.
Prepare for the Unexpected
Are you prepared for a rainy day? Experts say you should have anywhere between three to six months’ worth of expenses saved up in an emergency fund. The more you have saved up, the more secure you’ll feel in emergency situations. However, this isn’t easy, especially when you’re living paycheck to paycheck or if you haven’t been one to save much in the past.
Past just preparing for the rainy days, you should also be planning for a worst-case scenario. When you begin creating your family, it’s important that you’re thinking about your child’s future and thinking about all of life’s outcomes. It’s hard to have conversations about death, but these conversations are important to start having. If your family depends on your income and something were to happen to you, you want to make sure they are taken care of. This means you should start thinking about taking out life insurance.
Do your research to figure out what the best policy to take out will be. One option is whole life policies which offer an investment component as well as a death benefit. However, whole life policies can be cost-prohibitive. There is also term coverage which is more straightforward and usually a lot cheaper for younger parents.
Think About Your Financial Priorities
This point ties into preparing for the unexpected. First-time parents often think first about their children’s education first which is great. It’s also important that you are preparing for the future. In addition to having an emergency cash fund, you should financially prioritize your retirement savings, toxic debt payments (debt that is really hurting you like credit cards, pay day loans and title loans), and additional contributions to your emergency fund. After you get these areas in order, you should start working on your college savings strategy.
Capitalize on Discounts
It’ll be imperative that you begin saving, especially on items for the baby. One way you can do this is by couponing. Printable coupons and newspaper inserts, especially the ones from the Sunday paper are two key couponing sources. If you don’t have a newspaper subscription, at least to the Sunday paper, this is a great starting place. When it comes to printable coupons, there are tons of websites, including blogs and coupon databases that make finding coupons for all your favorite products easy. Coupons.com and Smart Source are just a few to name that allow you to search coupons by category, zip code and brand. They’ll even send alerts and offers to your email inbox. Use newspaper and downloadable coupons in tandem when possible.
If you’re just starting out, chances are you don’t have a large collection of coupons so take your time gathering them and saving them for the opportune moments. Compare stores and deals they are offering and if the numbers aren’t right, don’t use them. When it comes to gathering coupons, print as many as you’re allowed (generally there’s a limit on how many can be printed from one computer). Also remember that if an item is on sale for buy 2, get 2 free, you’ll be able to use 4 coupons: two for the paid and two for the free items. These are the opportunities where you’ll want to pull from your coupon collection.
Start Living on Less
There is no question - your finances will change after having a child. One parent might have to take some unpaid maternity or paternity leave. Practice living on less. Trying living on a lower income in the months leading up to your date so you can have idea what it’s like to live on less in preparation for the baby. Yes, that might mean cutting back on buying food or clothes will you’re out, but it will help you prepare to be more disciplined with your finances.
Preparing for a baby isn’t easy, especially with all the financial obligations you’re going to be up against. You will have a lot of things on your plate to manage. Hopefully, these financial tips will guide you and help you keep all matters in order so your child’s future will be bright.