Looking forward to that new baby smell? It’ll cost you… for years. USA Today has ten tips for “baby-proofing” your finances — the way you might baby-proof a kitchen — so you’ll be in a better position to part with $1 million over the next 18 years.
1. Review health coverage. Some new parents I’ve known have been constantly in and out of the doctor’s office. I hope those visits were all covered.
2. Get rid of credit card debt. You don’t want to still be making your minimum credit card payments when you’re also making diaper payments.
3. Build up an emergency. I don’t know one new parent who has not faced some sort of emergency in the first few years, but the severity of that emergency has varied. Emergency funds are good sense for anyone, with or without child.
4. Revise your budget. USA Today suggests using the calculator at babycenter.com.
5. Update your will and life insurance. This is a good tip for any major life change. You want want to add your newborn into your will and make sure you have enough insurance coverage to take care of the new arrival.
6. Show fiscal restraint. One father I know wanted to buy his new son every fancy gadget, whether for learning or for fun. Don’t go overboard.
7. Weigh the cost of staying at home vs. working. This is a fiery topic deserving of its own article, at minimum. Yes, sometimes there is a financial advantage to one parent staying at home, thus eliminating the need and the cost of day care. It’s a decision in which more than just finances come into play.
8. Open a tax-advantaged workplace spending account. Your employer might offer a healthcare spending account, which will allow you to deduct certain medical expenses for your family directly from your income. That’s also known as paying expenses with “pre-tax money.”
9. Exploit tax breaks. “See whether you qualify for child and dependent care tax credits or an earned-income tax credit. You should also adjust your tax withholding to reflect a dependent child; this will give you a larger paycheck, which will help cover your new baby expenses.”
10. Save for college. When you’re looking down the road, it’s likely that college is going to be an enormous expense, particularly if tuition rates increase at the clip we’ve been used to. Typical financial advice says that parents should not risk their own secure retirement for the college education of their kids. I think there must be a happy medium.
You and Me and Baby Makes $197,700 [USA Today]
Updated September 30, 2007 and originally published July 20, 2007.