Tips for Parents to Prepare Their Finances Before Having a Child

Tips for parents to prepare their finances before having a child.

finances before having a child

Photo by Natalie Bond

When it comes to planning for parenthood, you have a lot more to think about than setting up the nursery and purchasing baby clothes. Having a child is a wonderful experience, but they’re also very expensive. In fact, did you know that parents spend an average of $30,000 during their baby’s first year alone? It’s important for you to prepare your finances before the big day comes. In this article, we’ll be providing tips for parents to prepare their finances before having a child.

Eliminate as much debt as you can

If there’s one thing that can make raising a child difficult, it’s having too much debt. Whether it’s from credit cards or loan payments, debt can become a massive problem quickly. If you miss a payment, then you run the risk of having to deal with absurdly high-interest rates. To help you pay off debt, we’ve compiled some of the best methods:

  • Make extra payments whenever you can
  • Focus on the most expensive debt first
  • Use the snowball method
  • Refrain from using credit cards for every purchase

Debt, as dreadful as it can be, isn’t too difficult to pay off in hindsight. It just requires a bit of tenacity and diligence on your end. Make sure to go over your budget and see what’s coming out, so you can figure out your priorities.

See where you can save on taxes

Taxes are like debt as they can slowly, but surely eat away at your finances, and since we’re talking about children, you could get more of a tax break than you might realize. By claiming a child, you could be able to deduct from your taxes. When it comes time for college, you can save even more on your taxes in the future if you become their student loan cosigner. Cosigning on your child’s student loans for college can help them get the education they need. In addition, you can save on your taxes when the time comes.

Alternatively, you can start saving on taxes now by opening a 529 savings plan. This is a savings account and investment rolled into a single entity. How it works is that you open the account for a beneficiary and deposit funds that contribute to their education. Even if your child isn’t born yet, you can open the account in your name and then transfer the rights after you’ve given birth to them. The funds you deposit are tax-deferred, which means they aren’t affected by taxes until they’re withdrawn.

Get the necessary insurance plans

Being a parent requires having a few safety nets in the event of something unexpected happening. The two insurance plans you need to get are disability and life insurance. Disability insurance is a policy that can help cover some of your expenses. Pregnant mothers can apply for a short-term disability policy due to maternity leave and potential other complications that would prevent them from working. Life insurance is a policy that financially secures your beneficiaries in the event of your death. It’s not exactly the most positive subject to talk about, but it’s needed to ensure your child will be okay no matter what.

Leave a Reply