Getting ready for a new baby comes with plenty of tasks to complete. But once you’ve got the car seat installed and the crib assembled, take a few minutes to think about your expanding family’s financial future. Whether your baby is on the way or is already a few years old, use our tips to prepare your family for many of life’s surprises. You’ll rest easy knowing you have a plan for any number of scenarios.
Before baby arrives:
Get to know the details of your health insurance policy.
Before your baby arrives, you’ll want to double check your health insurance policy for two major items. The first is how your plan covers your neonatal care in hospital. Do you pay a certain percentage of the final costs or is there a fixed price per day for your hospital stay? Pull out your plan or give customer service a call to get an estimate of how much you will be responsible for. The second piece of information you need is what paperwork or deadlines exist in order to add your new baby to your health insurance plan. Most insurance companies require that the baby be added within 30 days of birth. That time can fly by when you’re up all night with feedings and diapers, so get your paperwork ready in advance so you can simply sign and send when your baby arrives.
In the first three months:
Sign up for life insurance.
If you don’t already have life insurance, considering getting a plan now, whether through your employer or a private company. This is particularly important if one parent is quitting work or cutting back hours to care for your new baby. If something happens to the working parent, the rest of the family will have the means to maintain your home and other living expenses without the worry of finding a new job right away.
Name a guardian, and make it official.
No one wants to think about worst case scenarios when their bundle of joy is on the way, but it’s important to make a plan nonetheless. Sit down with your spouse and discuss your options for your child’s guardian if anything should happen to both of you. Choose someone with similar principles to yours, and also make sure you ask before putting anything in writing. If you just want to start with a simple will and testament, consider using an online service like Legal Zoom. It’s hard to imagine anything happening, but you’ll feel better once you have this settled.
Before the year is out:
Learn your new tax deductions.
You’ll read a lot online about how expensive raising children can be, but there can be some financial benefits when it comes time to do your taxes. Even if your child was born on December 31, you can claim a tax exemption. For 2014, the exemption for each eligible child is $3,950. You can also receive a tax credit if both parents are working and your child goes to daycare. Check out our other surprising tax deductions you should know about.
By the first birthday party:
Set up a trust.
This step is especially important if your assets total more than $100,000. California law dictates that rather than going directly to your child, these assets first have to go through probate court, which will assess fees on your money and make your (and now your child’s) financials part of public record. In the case of a parent’s untimely death, save your child extra heartache by giving him or her easy access to your funds via a trust.
Once you’re sleeping through the night:
Start a college savings fund.
Whether you choose a traditional 529 college savings plan or an alternative savings method, it’s never too early to open a college fund for your child. The state of California offers ScholarShare, a 529 plan with tax benefits for contributors. But you aren’t restricted to just California’s plan: you can choose any state’s plan, so do some research before making a decision. Some financial analysts also recommend using other accounts like a mutual fund or municipal bonds. You won’t get the same tax breaks as a 529, but you also won’t be penalized if you decide to use the money for something other than college tuition. Consider talking to an accountant if you’re not sure which is the best path for your family.
With just a little bit of foresight and planning, you can easily prepare for Baby – and not just for the ride home from the hospital, but for years to come.