Nine Ways to Baby Proof Finances

Question:  

We’re thrilled to be expecting our first grandchild. What practical financial advice can you suggest for our daughter and son-in-law?

Answer:

Congratulations and welcome to the wonderful world of grandparenting. Babies forever change our lives for the better and have a way of boosting economic activity, too. When I became a grandmother, my online shopping activity increased dramatically. A future column should address financial tips for grandparents. For now, let’s focus on nine ways to baby proof finances in nine months. 

1. Anticipate upcoming expenses, monitor cash flow, and establish a budget. Check out  http://www.babycenter.com/baby-cost-calculator.

2. Set aside three to six months’ worth of living expenses in a readily accessible emergency fund. 

3. If appropriate, investigate childcare options. Will Grandma care for the baby, or is it possible to share a nanny with another couple while the baby is very young? For working couples, arranging for childcare is essential. Remind them to check into leave under the Family Medical Leave Act, or paid family leave if offered by their employers.

4. After sharing the good news with their employers, it will be helpful for Mom and Dad to be ready to answer questions about when they anticipate returning to work. They may consider telecommuting or job-sharing options if possible.

5. Stock up on wipes, diapers, and formula. Especially in this inflationary environment, costs for baby supplies can be overwhelming. A new car seat, diapers, wipes, clothing, and a place for baby to sleep are mandatory. Consider an online registry so friends and family can gift items that Mom, Dad and Baby will need. 

6. Have a plan in place for the unthinkable. Review life insurance offered by employers, and then consider supplementing it with a term or whole life policy. Disability insurance is also a good idea – between the ages of 35 and 65, we’re more likely to become disabled than to die. A financial advisor can help guide them toward the coverage that best fits their situation. And don’t overlook letting their insurance company know of the pregnancy and to add the baby to their health coverage. 

7. It’s time to update their will and estate plan by naming who would care for a minor child in the event both parents faced the tragedy of simultaneous death. Work with a trusted financial advisor and qualified estate attorney to make sure all bases are covered. In addition, if there is already an estate plan in place, be sure to review and update documents with the appropriate beneficiary information. This may be time for Grandma and Grandpa to review their estate plan as well.

8. According to the U.S. Department of Agriculture and the Brookings Institutions, child-related expenses are now estimated to total $310,605 from birth through age 17. This is a result of the consumer price index (CPI) being at a 40 year high as reflected in elevated costs for many items including housing, clothing, food, and gasoline. This figure does not include the cost of education after high school. If there is extra money in the bank when baby arrives, consider starting a college savings account. However, don’t divert funds from retirement accounts to a college fund. There are scholarships and loans available for education, but not for retirement needs.

9. Consult with your tax preparer regarding the Child Tax Credit. According to the IRS, tax filers can claim a credit of up to $3,600 per child under age six. Parents may also want to adjust the amount withheld from paychecks for taxes. 

It’s helpful to do as much as possible before delivery day; things will quickly become hectic and happy. When their little one arrives and the to-do list is checked off, they’ll thank you for helping to baby proof their finances. Stay focused and plan accordingly.