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, friend 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.
Create an education fund
It’s never too soon to start saving for college. A 529 college savings plan is a tax-advantaged1 investment account to be used for designated education expenses down the road. Because any returns 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 be an undergrad. Just be sure you also understand that your investment could lose value.2 It’s a good idea to request the plan’s official statement and read it carefully. This will include information about things like investment objectives, charges and risks. Learn more about 529 plan features and benefits from Merrill Edge.
Purchase life insurance and create a will
Getting life insurance and creating a will are not only parts of smart financial planning, but they also provide much-needed peace of mind. Should anything unexpected happen, you know there is a plan in place that protects and takes 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.
Please remember there’s always the potential of losing money when you invest in securities.
Before you invest in a Section 529 plan, request the plan’s official statement from your Financial Advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You should also consider whether your home state or your beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 plan. Section 529 plans are not guaranteed by any state or federal agency.
- To be eligible for favorable income tax treatment afforded to any earnings portion of withdrawals from Section 529 accounts, such withdrawals must be used for “qualified higher-education expenses” as defined in the Internal Revenue Code. Any earnings withdrawn that are not used for such expenses are subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes.
- Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.
Merrill Edge is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing.
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