How to Financially Prepare for a Baby

Financially preparing for a baby can have a sobering effect on your wallet. It's an important issue for no better reason than you want the best for your newborn. And, who doesn't? Let's look at some key financial areas before the little one arrives.

Review finances

Financially preparing for a baby means reviewing the household budget and determining if one parent will be staying home or some alternative baby care arrangement will be made. If either of these is not in the cards, you'll be factoring in daycare costs once maternity leave is finished. If the budget appears tight with whatever avenue is taken, some budget-cutting strategies may need to be employed.

According to ptmoney.com, "bringing a child into this world gives you the opportunity to press the reset button on your life somewhat." Take some time to go through the budget and slash anything unnecessary. Maybe some adjustments to your lifestyle may be necessary, but bear in mind, it's probably more short-term than long-term.

Do you need to brainstorm additional ways of earning income? Perhaps you can work some overtime or take on part-time work. Expecting a refund on your tax return? Do you need to evaluate your 401K contributions? Review your entire financial picture and decide what makes the most sense.

Cut debt

Do you have some extra cash in the bank that can be used to be pay off debt? Eliminate credit card debt by applying cash to the credit card with the highest interest rate first; then proceed to the next card. Is consolidation of debt an option? Just watch the interest rate and a fee for transfer balances. As an aside, try narrowing down to one credit card, and use it when absolutely necessary.

Emergency fund

If you don't have an emergency fund, consider setting one up now. It's for anything you aren't anticipating such as loss of work, unexpected medical bills during delivery, or a surprise home repair bill.

529 college savings plan

College tuition can be astronomical, and it only increases every year. If some money can be set aside each month, it's a smart idea to contribute towards a college savings account like a 529 plan. The contributions, each year, are federal and state tax-deferred. If the money is eventually utilized for college, the earnings will not be subject to federal tax.

Health insurance

Financially preparing for a baby also includes reviewing your health insurance plan because some plans may not cover certain providers particularly if they are "out of network." You want to know which bills will be owed at what rate before going in for delivery. Check your plan's approved list for all of your medical providers. You may have to set aside something in the budget for the little one's medical expenses. Also, if you contribute towards health care coverage, don't forget to account for your newborn. Your contributions will no doubt increase because you'll be a family soon enough.

Shower gifts

Before you head to stores like Babies R Us for anything other than registering, consider delaying that trip until after the shower. Two things are likely to happen. First, lots of stuff will come from friends and relatives. Second, you may receive more gift cards than originally thought, so resist shopping for baby stuff until after the big party. In addition, if friends and family have baby stuff in the attic, probably these items are still in good condition. Take advantage of free shopping; just make sure the items meet current safety standards.

Sources:

http://ptmoney.com/2009/04/10/can-you-afford-a-baby/

http://www.creditcards.com/credit-card-news/5-steps-eliminate-credit-card-debt-1267.php

http://ultimatemoneyskills.com/article/view.asp?articleID=46

http://www.kidzruleusa.com/files/34192508.pdf

http://www.sec.gov/investor/pubs/intro529.htm