Welcoming a New Child

How to organize your financial and legal affairs to give your little bundle of joy the best possible start in life.

By Jo Lynn Grooms, financial advisor with Wells Fargo Advisors

Whether you’re the parent or grandparent, welcoming a new child into your family is an exciting time. But it also means a lot of change. Parents have to budget for new costs and take other steps to protect their baby.


What budget changes will you face?

From cribs to car seats, having a baby is expensive. As far as clothes, monitors, toys, and all the necessities that come with having a child, remember that you don’t have to buy every baby product you hear about. Shopping around is another way to keep costs down. There are lots of ways to save, such as shopping at resale shops or borrowing items from friends and family.


How will you cover childcare costs?

The federal government offers two tax breaks to help defray some of those costs. First, check to see if your employer offers the option of a flexible spending account (FSA) for dependent care. It will allow you to set aside money tax-free to cover eligible child care expenses. The maximum annual contribution is $5,000, which hasn’t changed since Congress established the rules in 1986. Your employer’s plan may have a lower maximum. Make sure you don’t contribute more than you can spend, because in most cases leftover money does not roll over. Check with your employee benefits administrator for details on your plan’s rules.

The other break is a federal child care tax credit on up to $3,000 of eligible expenses–$6,000 for two or more children. You can’t take the credit for the same child care expenses you claim through your FSA, but if you had to pay any additional expenses outside of your FSA, you may still be able to claim the credit.


Can you afford to stay home?

The first step is to build a budget that allows you to pay your living expenses on one income. It’s important to know in advance what you’re going to give up, because once you have the baby, your finances can quickly be pushed aside in order to focus on the needs of your new child.

If your budget will be tight with just one income, consider ways to bring in money while still serving as your child’s main caregiver. Can you work part time or from home? Can you work a different shift from your spouse? Think about creative ways to create other income, whether it’s a home sales business, an online business, or consulting work.


What insurance do you need?

You can and should add your baby to your health plan as soon as he or she is born. If you don’t already have life and disability insurance, put those on your to-do list as well. Many folks overlook the need for disability insurance, even though disability can befall anyone at any time. You can often get it through your employer, and if you need more coverage, you can look into a supplemental policy. Life insurance is also vital protection for your young family. For most families, term insurance is the most cost-effective. Your financial advisor can help you figure out how much coverage you need and whether you should purchase it through your employer or pursue an individual policy. Stay-at-home spouses should be covered as well.


What’s the best way to save for college?

If you’re saving a comfortable amount for retirement and you have discretionary funds to put toward education, start by deciding how much college support you hope to provide and work backward from there. For most families, a 529 savings plan is the best option, and grandparents, godparents, or any other special adults in your child’s life can contribute to it.

Finally, don’t forget to enjoy this special time with your child. After all, some of the best parts of parenting — that first smile or shaky step — don’t cost a cent.

Based in Houston, Jo Lynn Grooms is a financial advisor with Wells Fargo Advisors. She can be reached at 713-853-2138.