Being a parent comes with an endless list of expenses. It’s important to budget accordingly, but it’s also important to speak with your accountant to maximize your benefits and optimize your financial situation. To kick things off we turned to Brian Hamilton, personal finance expert and the CEO of One, and asked him to highlight his best finance and budgeting tips for new parents.
Budgeting Tips for New Parents
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Get a full, visual financial picture. “Understand your income, current expenses, and anticipated baby expenses. Define exactly how much you need for yourselves, your child, childcare, healthcare, emergency savings, saving for education (or a home), and your goals. You can do this visually using One’s Pockets feature.”
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Automate saving money for each area that matters. “Having a general idea of how much money you need, and then just putting as much as you can into a savings account is not a viable plan. You should create unique Pockets for each of these spending/saving categories, then “auto-save” money into each one.”
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Get ahead of inflation by shopping early. “Use credit to buy things now, in advance of needing them. We are seeing rampant inflation and supply chain issues across the entire economy – and it will only get worse as we go into the holiday season. The prices of food, diapers, clothing, furniture and everything in between, are going up. If you know when your baby is due, then use low-interest credit now to purchase what you know you will need.”
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Switch to a low-deductible health insurance plan. “The costs of childbirth are quite high. While having a low-premium, high-deductible health plan may have made sense for you and your partner in past years (when you rarely used it), when having a child you are going to incur tens of thousands in medical bills that either you and/or your insurance company will pay for. It’s worth the extra $100 or $200 per month to have a low deductible health plan. The difference could mean as much as $10,000 out-of-pocket depending on your plan benefits.”
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Adjust your tax withholdings. “With a new addition to your household, you can adjust the amount withheld from your paycheck each month, so that you get more in your pocket.”
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You are probably eligible for a “child tax credit,” which can actually be paid to you in advance of your tax filing. “While previously the Child Tax Credit was $2,000 for children up to the age of 16 with only $1,400 of the credit being refundable, the American Rescue Plan made the 2021 Child Tax Credit $3,600 for children up to the age of five and $3,000 for children between the ages of six and seventeen. While the income limitations for the original $2,000 portion of the Child Tax Credit have not changed — beginning at $400,000 for married taxpayers who file jointly and $200,000 for all other filers — the income limitations for the “new” $3,600 / $3,000 portion of the Child Tax Credit are much lower and are shown in the table below.”
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You’re now a larger household, but your income hasn’t changed.“This puts you into a lower income tax bracket.”
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Expenses like nannies and childcare are tax deductible in many cases. “You should make sure you take full advantage of every one of these to minimize your income taxes.”
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Set up a “savings” plan for your child, now. “The law of compounding returns is very powerful. If you deposit $10,000 into an account for your child now, and an additional $100 per month, if that account can earn 3% annually, they’ll turn 20 with $50,000 in the bank. By the time they’re 30 they’ll have over $80,000. The key to compounding returns is time, so start early.”
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Select the correct vehicle for your child’s savings. “From Roth IRAs to a 529 Savings Plan, there are numerous pros and cons to each, and it’s imperative that you select a structure that you are willing to commit to for many years to come.
Can you share your own budgeting tips?
More About Finance:
- Tips To Financially Prepare For Egg Freezing And/Or IVF
- How To Build Up Your Emergency Savings Before Baby Arrives
- 5 Easy Ways To Save Money on Diapers
