The arrival of a new baby is one of life’s most joyful moments. You’re adding a new member to your family and a pretty cute one, at that. But as your life begins to revolve around this little one, with days and sleepless nights filled with diapers and feedings, you may find yourself starting to wonder: What if our baby gets sick? Should we get a nanny or do day care? Should we send our child to public or private school? And what about college?
These questions are all part of being a new parent, but money is the last thing you want to lose sleep over. “Babies are very expensive,” says Geraldine Hussey, a West Palm Beach, Fla.-based premier banker at SunTrust Banks. “Planning early is key.”
Here’s how to make sure you’re financially prepared when your baby arrives:
1. Evaluate your finances
As soon as you start thinking about having a baby or adopting, take a hard look at your finances, and consider how they may change. Will one parent take a break from work or transition to part-time to take care of your infant? Check your employer’s policies to see if you will continue to be paid while on family leave.
2. Pay off existing debt
Starting with a clean balance sheet will give you more financial flexibility to cover the unexpected expenses that come with raising a child. Prioritize high-interest rate debt, such as credit card balances, for the quickest payoff.
3. Make a budget
Once you know how much income you’ll have each month, draw up a realistic budget. You’ll have many new costs to plan for, such as diapers, child care and the cost of outfitting the nursery. Getting an accurate picture of these expenses will help you determine how much you need to save.
4. Start saving
“Scale back on luxuries and start saving immediately,” Hussey advises. Aim to save three to six month’s income so you’ll be better prepared for unexpected expenses, such as a major home or car repair.
At the same time, put together a separate savings plan that addresses your goals for your child’s education, especially if you plan to send your child to private school. Establish a college savings account as soon as possible, even if you can’t fully fund it right away. College may seem like a long way off, but the earlier you start saving, the more that money has a chance to grow.
5. Ensure a sunny future
Life insurance—on both parents—is a must-have. Premiums are lowest when you’re young, and there’s no going back if one of you should die before your kids are grown. “It’s about protecting yourselves so you can protect your baby,” says Hussey.
Achieving these financial goals might seem almost impossible right now. But it’s not so scary if you focus on the truly important priorities. Don’t get caught up in the latest trends for baby gear and cute outfits. Work hard to save on everyday needs. And reach out to friends and family for hand-me-downs. Being cost-conscious now can mean a bright, happy tomorrow for you and your new baby.