By Shira Boss
Zero Cost Kids
Baby showers, the nursery, those cute miniature clothes! It can be so fun to prepare for having a baby.
Babies don’t really need all those things, though. So while it can be entertaining, make sure to put some time and money into what really will matter to the child.
How to Prepare for Baby Financially
Here are 7 steps to take before the baby is born to prepare financially, starting with the easier ones. If you need help or hand-holding, ask a friend! People love helping new parents prepare, and all the better if it’s something important.
And if you already have the kids, no problem – it’s not too late to dive in and get organized financially!
Let’s get started!
1. Make a Baby Binder
This one is pretty fun, and you won’t believe the time and energy it’ll save you not only with a newborn but for all the years of childhood: Make a baby binder!
Use a binder, sheet protectors and dividers. A couple zip-up pockets or large plastic envelopes also come in handy, especially for keepsakes. Here are the must-have sections:
*IDs (birth certificate and social security card).
These will arrive in the weeks after birth, and are important for life. When you need them, you need them – and don’t want to have to hunt around! There is nothing like the feeling of knowing just where something is when you need it! Do yourself a big favor, and make a space for those important documents before the baby is even born.
*Health Records (newborn reports, the yellow immunization card, etc.)
*Health Insurance (card, copies of the card front and back, policies, claims, etc.)
I also added, and have found useful:
*Product Information (mostly manuals)
*Keepsakes (birthday cards, artwork, a lock from the first haircut, etc. This could use its own box or binder, but for the first year or two it’ll get you started)
*Activities (schedule of events at the library, information and calendar for any daycare or school, etc.)
And then, this is key: use the notebook. File papers right away, so you know where to access them at all times. Find a special place for the notebook and keep it there. I think you’ll find this to be a real lifesaver. I know we have!
2. Open a Savings Account for Baby
It’s never too early to start saving! You’ve budgeted some monthly money for the baby, right? (If not, now’s the time….) Start putting that amount into a savings account each month earmarked for the child. The sooner it starts building the better.
Then, try not to use it if you don’t absolutely have to. Babies should be kept as low cost as possible. So the best use of that fund is for the future – classes and camps and lessons the older child begs to participate in.
It could also be used for some kind of baby-related emergency if you can’t cover it from your regular emergency fund. Maybe unexpected medical co-pays, a specialty item the baby actually needs, etc.
But really this child’s savings account should be for later. Try to wait as long as possible to pay for activities – at the very least, until the child asks for it. That’ll give you a few years to let some funds build up. Pay for as much as you can out of your regular budget, and keep the savings account for something extraordinary.
3. Open a 529 College Savings Account
Oh, I know, so needy already and the child isn’t even born yet! You’ll want to take care of as many of these tasks before the baby is born because you won’t have the time and energy later – and it could get put off for years. When it comes to finances, delays cost big money. Regular contributions, no matter how small, over time are what matter.
Because I’m an obsessive squirreller – and understand the value of a tax shelter when I see one – I started contributing to a 529 account 13 years before our first son was born. The point being, it’s never too early.
How do you open an account before you have the child’s name and social security number? Easy: Make yourself both the account owner and the account beneficiary. Any time later, you can change the beneficiary to the child (and then later to a sibling, but if they’ll be in school at the same time, eventually contribute to separate accounts).
4. Make sure you have a Roth IRA
Have you put off saving for retirement? And what does this have to do with preparing to have a baby?
Well, a few things:
*None of us should be contributing to a college fund without first contributing to our own retirement account. If you’re eligible for a Roth IRA, it’s a fabulous and flexible tax shelter. Do your best to max it out ($5,500 per year if you’re under 50).
*Taking care of your needs in retirement means less stress on your adult children.
*If you end up not needing to spend your Roth IRA, the account can be inherited and retain its numerous tax advantages. The value of a Roth started early and left to grow can turn into a phenomenal investment decades later in the hands of your children.
How to Start a Roth IRA
How do you start a Roth? I use Vanguard and do it all online. It’s easy and the fees are the lowest around.
I recommend indexing – don’t try to figure out the market, even the pros can’t do that. Just use the Total Stock Market index fund (a representation of all the US stocks) or a Target Retirement fund (a collection of index funds that includes US, foreign and some bonds and changes automatically as you get closer to your target retirement year) and be done with it.
The Total Stock Market fund will go through more ups and downs over the years, so be prepared for that. The Target Retirement funds are more conservative. If you’re on the young side, though, which if you’re having a baby you most likely are, don’t even watch the account – just keep contributing and let it grow over the long term. It will.
More steps to prepare for baby…
More than half way there! I don’t want this list to be too long or complicated because then you might get overwhelmed and not do anything. And yet, I wouldn’t be responsible if I didn’t mention three more things that you should be taking care of. Take it step by step and don’t forget teamwork – get help as needed!
Let’s keep going…
5. Adjust Health Insurance
You’ll need coverage for the baby. Compare your options, and keep in mind that with a family and a low or moderate income, you might be eligible for help (Medicaid or a subsidized plan), at least for the child. Get the facts from your employer and your state and figure it out.
These are never fun calls to make, but are very important – and not something you want to juggle with a newborn in your arms. You’ll also want time to find a pediatrician you like that takes your insurance.
Before our second baby, I spent a ton of time researching the right pediatrician who was nearby, came recommended, and took our insurance. We schlepped our toddler to interviews and got everything in order.
But when I called – with a newborn in my arms – to add the baby to the insurance plan, guess what? Snafu.
“That pediatrician takes your plan, but not if you purchased the plan through the Obamacare exchange.” I can’t believe that’s legal… don’t get me started about Obamacare.
We ended up scrambling to find a new pediatrician that week not to have to pay out of pocket. All to say: Get everything lined up and triple-check coverage. Don’t get stuck like we did!
6. Make a Will
Again, who wants to take care of this? Nobody! Well, allot some time to researching fun things on Pinterest, and some time to getting not fun things done.
Making a will can seem so confusing and overwhelming. It might not even be clear to you why you would need a will, especially if you don’t have many assets.
Well, you want to be able to specify who you would like to take care of the baby if something happens to you. Especially if you are a single or unmarried (not exactly the same thing) parent.
So even if you just take care of that portion of a will, make sure you make a backup plan and leave some instructions in a safe place and with a trusted relative.
I’m no legal expert so can’t make specific recommendations as to how to get this done. I’ve used Suze Orman’s Protection Portfolio and found it cheap, easy and comprehensive, but there are likely more updated options out there. I’m sure there are many free or affordable options online, but none I’m familiar with enough to recommend. Readers, please share your expertise in the comments section below.
Just do what you have to do to get it done. Better to have something in place than nothing!
7. Term Life Insurance
You generally don’t need life insurance until you have children. Most adults can fend for themselves. But a baby changes everything! They’re wholly dependent for two decades. Unless you have oodles of money and are willing to scale back lifestyle as needed, both spouses need insurance because both are providing a service to the family.
If a wage earner is lost, that income needs to be replaced. If a stay at home parent is lost, alternative childcare and homekeeping services need to be provided.
Term life insurance is pretty affordable for younger people. Do some calculations and sign up for what’s needed. No need to overdo it, this isn’t a lottery alternative. Again, lots of options here but we’ve always used SelectQuote, which is a broker (I found them years ago through Suze Orman’s book 9 Steps to Financial Freedom).
And to reiterate, the only life insurance anyone needs is a term life insurance policy. That’s for a fixed amount of money, e.g. $400,000, and the policy is in force for whatever term you purchase, e.g. 20 years. Don’t overdo the term – remember that as the kids get older, childcare needs decrease and your family will have had longer to save up for expenses like college and retirement.
Take these steps to prepare for baby and breathe easy!
I really encourage you to dive in and take care of these steps in order, from the fun to the, um, less fun. You’ll only have less time and energy after having children. Take care of these now. Each step you take will give you greater peace of mind and set up your children for a more secure future.
You can do this!