Having a baby is one of the greatest joys in most people's lives. In honor of Father's Day, here are our best personal finance tips for new dads—and a reminder for the veterans.
Having a baby isn't just about providing for it emotionally and physically, it's about taking care of his or her financial needs. And if you haven't heard that babies are expensive, you'll learn that pretty soon (if you haven't already in prepping for the little one).
1. Reevaluate Your Budget
First-time dads are in for a big surprise when they have kids. They'll learn how to survive on three hours of sleep, how to change a diaper in a mall bathroom, and how to travel with a crying baby on a packed airplane.
Unfortunately, they also have to learn how to reevaluate their budget. "If you didn't have a budget before, you'll certainly need one now," said financial planner Kevin Matthews, whose first child was born in March. Read more here about how to make a budget.
There will be a slew of miscellaneous expenses that new dads may not always predict, like taking a baby to a check-up every few months to paying for a babysitter when you're craving a date night. All of these costs can add up quickly and if you haven't changed your budget, you could end up overspending.
2. Research Daycare Options
For most new dads, the biggest budget change they'll see is daycare. Sure, diapers, wipes and formula adds up, but daycare is the greatest at an average of $872 a month. Costs depend on your location, what kind of provider you use and how many days a week your child goes to daycare.
Because costs can vary so widely, it's important to look up providers before making a financial decision. Consider alternatives, like sharing a nanny with your neighbor and their two-year-old, or having your mother-in-law watch the kids a couple days a week. Even saving $200 a month can add up quickly over the course of your child's life.
3. Start a 529 Plan
Most parents want to provide everything they can for their child—including a college education. Unfortunately, as tuition costs continue to outpace inflation, it's getting harder and harder for parents to do so.
That's why starting a college savings fund, like a 529 plan account, while your kids are young is key. Just like a 401k or IRA, 529s do best when they have time to grow. Start one as soon as your child is born so your money has more time to compound.
"Because of compounding, small amounts invested today can help pay for a wedding, a down payment for a home, a college education or even a business," Matthews said. "It is a golden opportunity you won't get back."
Some states even give you a tax credit or deduction if you put in money to your 529, legally known as "qualified tuition plans." For example, a $5,000 annual contribution to an Indiana 529 plan will save you $780 in taxes if you make $100,000 a year.
Your friends and family members can also contribute to a 529 plan in lieu of stuffed animals and Lego sets. Withdrawals from 529 plans are tax-exempt if used for qualified education expenses, such as tuition. Learn more here about saving for college.
4. Update Your Insurance Policies
One of the first things every new father should do is update his insurance policies, including life and health insurance. A life insurance policy should ensure that the child doesn't suffer financially if one or both parents die. Even if one spouse is currently not working, you should still factor in what it would cost to replace their household duties. If they return to work at some point, calculate their new income into the policy.
A new health insurance policy should include dependents and should have enough coverage so a trip to the hospital when your baby has a 103-degree fever doesn't break the budget.
"Your responsibility financially isn't just for you anymore, but it also expands to the little one too," Matthews says.
5. Beef Up Your Emergency Fund
If you haven't had an emergency fund, now's the perfect time to start. You'll need between three-to-six month's worth of expenses in a liquid savings account. This money will be used in case you or your spouse lose your job, suffer a physically debilitating accident, or have a medical emergency.
When you have kids, you have to be more prepared for these kinds of catastrophes and an emergency fund is one way to do that.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.