To say a baby changes everything is a truth that can’t be underscored enough. From when and how you eat to what you wear and the hobbies you enjoy, life with a little one looks very different than your single days. One area where these changes glare bright is your finances. Now, you are responsible for yourself and another human — at least for the next 18 years.
With that in mind, here are a few new rules you might want to implement for yourself and your family for the next two decades or more.
Rule #1: Get Life Insurance
Life insurance is not meant for you. Instead, it is a financial tool that protects the people you love from a cash crisis in case of the unexpected. Many people forgo this vital step, however, out of unwarranted fear over having their blood drawn. A blood test, despite what you might think, is minimally invasive, and it’s quick and usually painless. The information they receive from this small vial of blood can help them pinpoint your insurability based on glucose levels, cholesterol, and substance use (this includes drugs, cigarettes, and alcohol). A few minutes of your time can help you get a significantly lower rate and more coverage than applying for life insurance without having a blood test done.
Rule #2: Learn How to Budget
A budget is a preplanned method of how you’ll spend your money each week/month/year. It can help you understand best where your paycheck goes so that you can make better decisions that affect your personal economy. Financial literacy firm Payoff explains creating a budget starts with understanding your expenses. You’ll then need to look at your income and set goals on how much you want to save and how to pay off outstanding debts.
Rule #3: Set Life Goals
Setting goals is worth noting as a separate edict. When you are starting a family, you have to set goals that affect them daily and in the long run. One of the most prolific of these is purchasing your own home. Before you can even begin this process, however, you will need to save as much as 20 percent of your target purchase price as a down payment. According to Redfin, FHA loans may allow you to buy with only 3 percent, but you will also have to pay mortgage insurance. Other goals to keep in the back of your mind are college, retirement, and whether or not you want to travel with your family.
Rule #4: Know the Tax Benefits of Your Baby
While you certainly did not have your child/children with the intention of a bigger tax return in April, you may get one as a result. It is so important to know and claim all of your credits and deductions. eFile lists a few of these as the Earned Income Credit and the Child and Dependent Care Tax Credit. There are many overlooked tax deductions that can help pad your pockets
Rule #5: Create an Emergency Fund
Before you start saving for college and before you start planning your retirement, you’ll want to put away enough money to cover emergencies. Most experts agree that three months’ worth of living expenses is a good start. This can help you cover the cost of living if you find yourself suddenly unemployed or unable to work. It’s also a good idea to have a “rainy day” fund handy. This is a few hundred dollars that can take the burn out of things like parking tickets and busted windshields — things that are urgent but not true emergencies.
Once you get a handle on your financial situation, you’ll be in a position to plan for the future — yours and your children’s. Remember, life changes when you have children. The way you manage your money has to keep up with the speed of life. The rules above can help you do it.