Raising a child only becomes more expensive as he or she gets older, so new dads (and moms) should start planning and saving early to be prepared, experts recommend.
A middle-income family will spend $233,610, or $12,980 a year, for one child from the time they’re born until they reach 17, according to the Agriculture Department’s 2017 Expenditures on Children by Families. This includes the price for food, shelter and other necessities.
If you’re a new dad — or mom — here are five money moves you should make soon after you become a parent.
Add your child to your health insurance plan
Notify your health insurance company that they’ve had a change in family status to make sure your child is covered by your health insurance.
“You usually have 30 days to notify your health insurance company,” said David Haas, a certified financial planner based in Franklin Lakes, New Jersey. “There can be all kinds of problems getting coverage if you miss that window.”
If done in that time frame, the medical expenses for your child should be covered retroactively.
Review budget and taxes
A new baby means additional expenses, so you should review your budget and spending and adjust it to the new situation. One way to organize this is to look at what you have by gathering your bank accounts, credit card statements, retirement and other savings documents, insurance, tax returns, and carefully review them.
Additionally, make sure you update your paycheck withholdings by requesting a new W-4 form from your employer’s human resources department. Look into certain child tax breaks, too.
“The most significant cost is typically childcare, there are some potential tax breaks to consider when planning to pay for childcare including a Dependent-Care Flexible Spending Account and the Child & Dependent Care Credit,” said Eric Dostal a certified financial planner based in New York.
Get term life insurance
Someone now depends on you and their life might be drastically different if you weren’t there to provide and care for them, so getting life insurance is important.
“Don't count solely on life insurance from work. What if you can't get life insurance later in life and need to leave that employer?” said Nadine Marie Burns, a certified financial planner based in Ann Arbor, Michigan. “You should own your own policy and it should be at least 10 times your annual income for that family.”
Term insurance, which provides coverage at a fixed rate, can be inexpensive. A 15-year policy could be enough to get you through until you have saved enough with retirement, college funds, and paid enough on your home that you would not need that much insurance, according to Burns.
Start saving for college early
The earlier you start saving for your child’s college education, the better. Experts recommend opening a 529 savings plan soon after you become a parent. A 529 plan is a tax-advantaged investing program that allows families to save for their kids’ education.
“Investing in your child's education is the best gift you could give to set them on a good life path,” said Monica Dwyer, a certified financial planner based in West Chester, Ohio. “Now 529's can even be used for private grade school/high school and/or trade school should that be his/her destiny.”
You can start by adding $500-$1000 into it and reviewing an age-based option. Additionally, you can let your family know that besides needing diapers, you would like to fund that account for their future, Jason Bottenfield, a certified financial planner based in Dallas, Texas, suggests.
Establish an estate plan
When bringing a new child into the world, it’s essential to establish a plan of what happens to your money and property if something happens to you. Estate planning is taking a series of steps to ensure how your property will be handled after you die.
“Leaving money to your parents, others, versus your child is a major mistake that is made all the time,” Bottenfield said. “Cheap options to get a basic plan in place exist.”
The process includes getting a will, power of attorney, and health care proxy, Roger Ma, a certified financial planner in New York City suggests.
“As part of the will, they will need to figure out who an appropriate guardian will be for their child if they and their partner aren't around,” Ma said.
Read more information and tips in our Family section