As a kid excitedly filling their first piggy bank with their allowance, there’s often one special item they’re saving up for – maybe it’s the new superhero action figure, the newest Barbie, or the next book in their favorite series. But for parents, there are so many piggy banks you want to prioritize with your precious savings, especially when you’re expecting a baby.
A certified financial education instructor takes you step by step through budgeting tips, financial considerations for parental leave, savings accounts, and investing for your baby.
How should I budget for a new baby?
The birth of a child is a great motivator to assess your finances and create a budget. This means you’ll gain an understanding of where your money goes and make a plan for the future.
Start by writing out your financial and life goals – budgets are often abandoned if you don’t have underlying motivation. Maybe you want to be able to afford your first choice daycare, private school, or an annual family vacation.
Next, organize all of your spending into one place. Some banks have a feature called account aggregation that lets you see all of your accounts in one place. After creating a holistic picture of your spending, audit your habits while looking at the full year to account for expensive months or seasons, such as the holidays.
With your goals in mind, reduce any unnecessary expenses. Did you find a subscription that you forgot about? Or maybe you realized an area of spending no longer aligns with your current life chapter. Review your goals periodically to help build intentional spending habits.
To prepare for life with your new baby, automate as much as you can. This will help you avoid late payments and fees while you’re focused on your beautiful baby and (likely) low on sleep.
Parental Leave Piggy Bank
One of the “piggy banks” for baby preparation is parental leave. Putting away money in this piggy bank may ease the financial burden of parental leave, or allow you to extend your leave through the unpaid portion.
It’s important to know what leave is available for you and your partner. You may be eligible for:
- Employer leave, such as short term disability,
- Federal leave, such as Family and Medical Leave Act (FMLA),
- And possible state-specific leave programs.
Employers are not required to know what leaves are available or what you qualify for, so it’s best for you to investigate your options.
Some leave programs are unpaid, such as FMLA. However, if you accrue sick time at work, you may be eligible to be paid out from your sick time while you’re on unpaid leave. It’s critical that you understand how much money will be coming in during your leave.
Check if each parent qualifies for a leave. If so, see if you can take them back to back, or one parent at a time. This could allow your baby to have quality time with each parent, and delay the need for childcare.
To bridge the incoming gap during leave, consider opening a high yield savings account to set aside savings for leave, or putting parental leave on your baby registry at BeHerVillage. Set up direct deposit so that a specific amount or percentage of each pay check goes into your parental leave account before you go on leave. If the money is out of sight, it is out of mind and you are less likely to spend it on something else.
Lean on your community, near and far, for help learning about your leave options. Ask a coworker who had a baby last year, or the neighbor that’s currently on leave if they are open to sharing their leave experience. You can also consult with parental leave specialists, like Hello Bundle, for professional guidance.
Savings accounts
When choosing a savings account, consider:
- Interest rate(s) for the amount you’ll start with and your total goal amount
- Fees
- How you want to set up your account – in your name, or your baby’s
Look into small, local banks, including credit unions to find higher interest rates or high yield savings accounts. Then, review the fees. Search for an account that has little to no fees.
If you are opening a savings account in your baby’s name, proper account set up is essential to qualify for the tax incentives. If the account is detailed to “pay on death,” then the account is not really in your child’s name. The account should be called a custodial account to truly be in your child’s name.
The Investment Piggy Bank
Time is on your side when you begin investing for your baby at a young age. Some investment options are:
- 529 account for qualifying educational expenses
- Custodial brokerage accounts
- Government bonds
The 529 is a must-know account for college education and qualifying K-12 education costs. In a normal savings account, you pay income tax on the interest, but in a 529, the money is not taxed as it grows. It is also not taxed when withdrawn, as long as it is used on qualifying education expenses. Some states have incentives to start a 529 account, such as giving you $25 when you open the account.
Custodial brokerage accounts are in your child’s name, but managed by the parents. These may also be called Uniform Transfers to Minors Act (UTMA) accounts or Uniform Gifts to Minors Act (UGMA) accounts.
There are a few types of government bonds: EE bonds, I bonds, and potentially an upcoming Baby Bond. These bonds support a one-time cost for parents to buy the bond, and the baby bond may include a gift of money from the government.
Picking Your Piggy Bank
It’s not easy to prioritize your piggy bank as adults and soon-to-be parents. Let your values and life priorities guide your budget and future finance planning, and automate as much as possible. It’s okay to start small, every little bit is worth it for your baby and your life as parents.
Subject Matter Expert: Dan Richmond RN, BSN, CMSRN, CFEI®
Written by: Elise Shearer, RN
