Money should not get in the way of starting or expanding your family. This is a joyful time meant to be celebrated, so congratulations on thinking about or adding a new family member!
Yes, money matters, but taking a strategic approach to the way you save and invest could help alleviate some of the financial stress associated with this momentous phase of your life. These five tips can help prepare your budget and maximize savings goals.
1. Communicate, and then communicate more
The first and perhaps best thing you can do when it comes to finances and expanding your family is talk it out. Clearly communicate with your partner and anyone else who is directly involved with financing your newest addition. Be mindful that the road to financial success will be paved with pre-determined goals, budgets, and back-up plans. Honest conversations about concerns, aspirations, and what matters most is crucial.
2. Consider all costs — your budget is about to change
Examine your current personal or household budget. New family members are expensive, so find places where you can cut back to start saving more. Consider these monthly necessities that will directly impact your budget:
- Diapers: Babies may require 10 or more a day!
- Clothing: Babies and children outgrow clothing fast; so many shoes and coats!
- Doctor’s visits: Mom and baby may need a series of checkups before and after birth. Even a healthy child needs to see the doctor regularly.
- Child care: With child care rates steadily climbing, the decision to go back to full- or part-time work and use child care — or stay home and sacrifice income — takes a toll on many families and their budgets.
- College savings plan: It’s never too soon to start saving for your child’s education. Consider adding college savings to your monthly budget because even small contributions now could pay off when your child turns 18.
- Insurance: You’re adding another dependent to your healthcare plan and that may mean an increased monthly health insurance premium. And if you don’t have life insurance, now may be the perfect time to look into that option.
This is hardly a comprehensive list of family expansion expenses, but its aim is to get you thinking about all your baby-budget needs.
Write them down, add them to your current budget, and take action. Work with your partner and family to see where you can realistically cut back and set up a game plan for baby-budgeting success.
3. Lower your interest rates — decrease or eliminate any current debt
As you work through your budget, you may notice areas where you’re overspending (dinners out, fancy lattes) or interest rates that are super high. Make sure you have a thorough understanding of your debt. Include interest rates and term lengths so you can calculate your compounded debt over time. Knowledge is power, so take the time now to know exactly where your money is going, especially when it comes to some of these most common debts:
- Credit cards: Do your best not to carry any debt month to month to avoid paying interest. If you’re unable to pay off your credit card balance in full each month, call your credit lender and simply ask if there may be a way to lower your interest rate. Either way, you want to be sure to pay off your credit card debt, ideally before your new addition arrives.
- Student loans: The amount of debt associated with student loans may be especially daunting when aiming to build a family. Refinancing your student loans could be an important step to reduce that debt by combining multiple loan payments into one monthly payment while reducing your overall rate, payment, or both. If you’ve already refinanced, check in with your partner or spouse on their loans. Many people are not aware of refinancing benefits, so get the word out!
4. Need fast cash? Take out a personal loan
Maybe you don’t have the funds right now to afford a baby crib, or to provide a down payment for child care. That’s OK, there are options available to help you finance them.
Of course, different lenders and solutions provide varying benefits, so read the fine print. But here are a few options to check out when you need access to credit:
- Use the equity in your home: If you are a homeowner, you may be able to take out a home equity line of credit (HELOC) against the value of your home. A HELOC is similar to a credit card. Great for debt consolidation, home upgrades, and expansions, you can use what you need when you need it. It’s also a tax-deductible solution1, making it a potentially smart option for purchasing necessities before the baby arrives.
- Take out an unsecured personal loan: Calculate your new budget for the baby to find out where you come up short. Then borrow only what you need to bridge the gap. When taking out an unsecured personal loan, weigh the repayment term length and interest rates to choose an option that makes the most sense for your goals. Keep an eye out for additional costs like loan origination, application, and disbursement fees. Some lenders waive these fees, so be sure to review the fine print to access the best solution for you and your family.
5. Save and consider investing
There are so many wonderful things to look forward to! You and your growing family have a world of promise ahead, so don’t forget about the important long-term financial goals you have, such as:
- Your own retirement: It may be easy to forget about your own future with a growing family in the here and now, but retirement savings are essential. Be mindful of the compound interest that grows over time — the earlier you start, the better, so don’t stop. Remember that a sound financial plan does not include children supporting their parents through retirement.
If your company offers a 401(k) or equivalent retirement solution, start or continue contributing to it so you have something set aside for yourself later in life. Some companies offer matching percentages. For example, if your company matches 4% of your 401(k), it’s in your best interest to aim to contribute at least 4% so you gain the full matching benefit. If you are already maxing out your 401(k) and want to continue to contribute more to your retirement, there are additional options like Individual Retirement Accounts (IRAs).
- Save for your child’s education with a 529 Plan: College and graduate school is expensive, so think about saving for your child’s education right away. Encourage loved ones to help by making early donations in a state-sponsored 529 College Savings Plan that may be used for qualified educational programs.
Concerned about making consistent payments? Consider setting and forgetting an automated monthly payment while your contributions grow, tax deferred.
The bottom line
There are all kinds of families and all kinds of ways to financially support them. Communicate with your loved ones. Be open and honest about your present financial situation and where you realistically aspire to be. Keep in mind that the decisions you make today could directly impact your family’s future. Be thoughtful in your approach to your finances so you can focus on cherishing this exciting time in your life.
Starting or growing your family is an exciting time in your life. A home equity line of credit can provide the access to cash you need to be best prepared for your newest addition. To learn more, please call 1-888-333-1206, visit us online, or Ask a Citizen at your nearest Citizens Bank branch.