Preparing for a new baby is daunting. There are so many things that need to be done and so much money that needs to be spent. It can feel like you’re drowning in a sea of diapers and onesies. But a priority needs to be smart financial planning.
Setting up a budget
It’s important to start preparing for the new arrival as soon as possible. One of the most important things you’ll need before your little bundle of joy arrives is a budget. This will help you plan how much money you can spend on diapers, food, car seats, and all the other necessities.
There are lots of different ways to set up your budget – from pen and paper to apps like Mint where you can track your cash flow and help you see easy opportunities to save. Or Personal Capital that tracks your budget and provides advice on investments and financial planning.
Paying down debt
There are many methods for paying down debt. Start by making a list of all your debts and their interest rates, then prioritize them in order of the highest interest rate first. If you have any high-interest credit card debt, try transferring it to a low-interest credit card so that you can save money in interest payments over time.
A college fund
The best way to prepare for your child’s college fund is to start early. This will give you more time to accumulate the funds you need, and you’ll be able to take advantage of compounding interest while the money is in your account.
You can open a 529 plan account or a Coverdell ESA account, which are both tax-advantaged savings plans that allow you to save up to $14,000 per year for college expenses.
You should also consider what kind of insurance plan is best for your family. In some cases, it might be better for you to buy individual insurance plans than group insurance plans because they are cheaper and more tailored. And sign up for any employer benefit like Flexible Savings Accounts or Health Savings Accounts that are pre-tax dollars for things like co-pays, prescription drug costs, chiropractors, and more.
It’s also helpful to have an emergency fund that will cover 6-12 months of living expenses in the event of a layoff or change in employment. With an emergency fund, you’ll have a cushion while you’re searching for a new job. It should be calculated using your current take-home salary times of either 6 or 12 months.
Buying your first home
A home does more than offer security and stability for your family, it’s also a very wise investment. There are many programs for first-time homebuyers that allow you to purchase a home with either zero or very little down payment. Ensure your debt-to-income ratio is not greater than 28% of your monthly income. And when all of your debt payments are combined, they should not be greater than 36%.
One of the best ways to earn extra income for college funds or home purchases is to generate it yourself by way of starting your own business. One that you can do from home, like online sales, tutoring, web design, freelance writing, and so many more, will allow you flexibility. Create a business plan to help you learn if your idea is viable, if there’s a way to market it, and if you’ll have the time to do it.
Protect your personal assets by forming that business as an LLC. It has other advantages, like a lower tax burden and less paperwork. And it’s easy to learn how to start an LLC through a formation service.
You have lots to do to prepare for your new life as a family, like getting ready to purchase your first home, making budgets, earning extra income with a home-based business, and making the most of your insurance options.
This great new chapter in your life is filled with both excitement and uncertainty, but with foresight and planning, your financial future can be one less thing you have to worry about.
The article is written by Ted James, who wanted to share this helpful information with us.