Are you financially prepared for a baby?
Six steps you can take before your new family member arrives.
If you’re preparing financially for a baby or new addition to your family, you probably have a million things running through your mind. Whether your mind is on diapers or you’re concerned about child care costs, we’ve put together this list to help you prepare for the arrival of your new family member.
Review your health insurance
You’ll need to add your new addition to your health insurance policy, so take the time to review your policy now, while everything is relatively calm. If you’re currently covered through your job, you can find out how by contacting human resources, or talk to your insurance provider. Also keep in mind that even with health insurance, you might be responsible for some out-of-pocket expenses when it comes to childbirth and family coverage plans. By reviewing early you will have more time to ask questions and start saving.
New additions are exciting for everyone, including family and friends. It’s likely they’ll be looking for ways to get involved or to help, which is why it’s a good idea to set up a registry. Register for everything from diapers to the big stuff so there’s something at every price point. Plus, friends and family may come together to help buy those big-ticket items, which will help you cut expenses.
Set up a baby account
Not only do babies need a lot of stuff, like diapers and formula, but you’ll also be looking at bigger expenses such as car seats, furniture and possibly child care. It’s a good idea to start saving for all of it as early as possible. Consider a separate savings account where you can start putting money away now. You might also consider setting up automatic transfers from your checking account to your savings account after each paycheck to help you build your savings without having to think about it. When the baby arrives, you’ll be ready for the additional expenses. If you’re a Bank of America customer, learn about how automatic transfers can help you reach your savings goal.
Create a (new) budget
If you’re wondering how to prepare for a baby financially, start thinking about your budget sooner rather than later. Start by talking to your spouse or partner about any big changes that might impact your finances. For example, if one of you is thinking about staying home after the baby arrives, now is a good time to plan for life with one income. Look at your current budget—see if you can find wiggle room in your discretionary income and savings. Generally, this is where you’ll find the money to pay for your new expenses.
Tip: If you need help putting together a budget, we've outlined some steps to get you started.
Start a 529 account
It’s never too soon to start saving for college. A 529 plan is a tax-advantaged1 investment account to be used for qualified education expenses down the road. Because any earnings on your investment have the potential to grow, the sooner you can start putting money into that account, the more you'll potentially have available when it comes time for your baby to go to college. Just be sure you also understand that your investment could lose value.2 It's a good idea to request the 529 plan's official statement and read it carefully. This will include information about things like investment objectives, charges and state tax or other state benefits that are only available for investing in your home state plan.
Purchase life insurance and create a will
Getting life insurance and creating a will are not only parts of smart planning, but they can also provide comfort in knowing there is a plan in place to help protect and take care of your family. Plus, this is also a good time to review your existing policies and update your beneficiaries, if needed.
When you're getting ready to have a baby, it's a fun and frantic time. But it's also the best time to start financially preparing for what's ahead. Put together a plan you feel comfortable with, and know that if you need to, you can always adjust your budget later and still be in good shape.
- To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a Section 529 account, such withdrawal must be used for “qualified higher education expenses,” as defined in the Internal Revenue Code. The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. The additional tax is waived under certain circumstances. Qualified higher education expenses include: tuition, fees, books, supplies and equipment required for enrollment or attendance of the beneficiary at an eligible educational institution, certain room and board expenses, special needs services incurred in connection with enrollment or attendance at an eligible educational institution, and computers or peripheral equipment, computer software, or internet access and related services that are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. The beneficiary must be attending an eligible educational institution at least half time for room and board expenses to be considered a qualified higher education expense, subject to limitations. Institutions must be eligible to participate in federal student financial aid programs to be eligible educational institutions. Some foreign institutions are eligible. You can also take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an elementary or secondary public, private or religious school. Qualified higher education expenses now include expenses for fees, books, supplies, and equipment required for the participation of a beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the beneficiary or sibling of the beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the beneficiary will count towards the lifetime limit of the sibling, not the beneficiary. Such repayments may impact student loan interest deductibility. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.
- Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.