Financial Planning for First-Time Parents: Expert Tips to Prepare for Your Baby’s Arrival
/Guest Post By Trey Holloway
Babies Are Expensive They Say….
But what does that really mean? Let’s talk about how can you prepare yourself not only physically and emotionally but also financially for a new baby.
Why Financial Planning for New Parents Matters
Is newborn financial planning a thing? It should be! Preparing for your baby’s arrival is exciting, but it’s also a major financial responsibility. As someone who didn’t know much about personal finance before becoming a parent, I feel incredibly fortunate to be married to Trey, an expert in budgeting and financial planning. Trey has spent years in the field of personal finance, and his knowledge has been invaluable as we’ve raised our family.
Since he’s the CFO of our family, I asked him to share his expert advice with you, especially if you're just starting your financial planning for a new baby. Whether you’re budgeting for baby essentials or planning for your child’s education, these tips will help you start off on the right foot.
How to Prepare Financially for a New Baby: Expert Tips from Trey
Trey’s financial wisdom is practical and straightforward. Here are his key tips for first-time parents preparing for baby:
His Key Points:
Open a 529 Plan
Participate in your workplace’s Dependent Care FSA (DCFSA) program
Freeze your new baby’s credit
Hire an accountant
Spend a little money on yourself
Trey’s financial wisdom is practical and straightforward. Here are his key tips for first-time parents preparing for baby:
1. Open a 529 Plan for Your Baby’s Future Education
One of the first things Trey recommends is opening a 529 plan for your child. A 529 plan is a tax-advantaged savings account designed to save for educational expenses, whether for college or even K-12 private schooling. You’ll need your baby’s social security number to open a 529 plan, so make this a top priority.
By contributing to your state-run 529 plan, you can potentially deduct contributions from your state taxes. For example, Maryland offers up to $5,000 in deductions per child if both parents contribute to the state’s plan through T. Rowe Price. Make sure to select appropriate investments for the money to grow. Over time, this can be a huge financial benefit for your child’s future education.
2. Maximize Your Savings with a Dependent Care FSA (DCFSA)
If your employer offers a Dependent Care Flexible Spending Account (DCFSA), take advantage of it. A DCFSA allows you to set aside pre-tax money to cover childcare expenses, including daycare, nannies, and au pairs. This can save you significant tax dollars!
In 2022, the contribution limit for a married couple is $5,000. If you plan on spending this amount on childcare, using a DCFSA helps you avoid paying taxes on that money. You can then take these savings and use them to fund your newly opened 529 plan for your child’s future.
3. Freeze Your Newborn’s Credit to Prevent Identity Theft
It’s not something most parents think about, but identity theft can affect children too. Once your baby has a social security number, they are at risk for fraud, especially because their credit history is usually untouched. To prevent identity theft from happening, call the three major credit bureaus and request a credit freeze for your baby.
This will prevent anyone from opening credit accounts in your baby’s name. When your child is older and needs a credit history, you can easily unfreeze it. Taking this simple step will protect your child’s financial future from the start.
4. Hire an Accountant To Navigate Tax Benefits
When you have a child, your tax situation will likely change, and it can be complex. That’s why hiring an accountant is a smart move for first-time parents. An accountant can help you navigate tax deductions for new parents and advise you on how to adjust your tax withholdings to avoid surprises at the end of the year.
In addition to possible tax credits and deductions, they can help you understand how family finance will evolve now that you're responsible for a child. Even a short consultation with a tax professional can ensure that you’re making the most of your new financial responsibilities.
5. Take Time to Invest in Your Relationship (and Yourself)
Before your baby arrives, consider investing in some quality time with your partner. You’ve probably heard about babymoons, and I’m firmly in the camp of encouraging parents-to-be to take one. It’s a rare opportunity to relax and enjoy each other’s company before your family grows.
Whether it’s a getaway or just a day trip, spending some time together can recharge your batteries and strengthen your partnership. Taking care of your relationship and mental health before your baby arrives is a great way to set yourselves up for success as a family.
Conclusion: Financial Preparation for New Parents
As you prepare for your baby’s arrival, keep in mind that financial planning for new parents doesn’t have to be overwhelming. From opening a 529 plan to taking advantage of tax-free childcare savings, these expert tips will give you the tools to plan for the financial demands of raising a child. Remember to take things one step at a time, and consider seeking professional help, whether from an accountant or financial planner, to ensure you’re making the best choices for your growing family.
Next Steps
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