In business, expansion can be a good thing, but sometimes more is not necessarily better.
Years ago, I remember a chicken restaurant that popped up on every corner … until expansion became contraction and the bankruptcy probably cost millions.
That's not a perfect analogy because there's more at stake than money when it comes to the decision to grow your family, but finances should be part of your expansion plan. There are no do-overs once that bundle of joy enters your life. While you can't be prepared for every financial possibility, you can lay the foundation for a smooth expansion.
Here are a few important tasks if you've expanded, or are considering expansion:
Review your benefits. Check with your employer to find out what is offered from a paternity and maternity leave standpoint. The Family and Medical Leave Act requires employers with more than 50 employees to offer 12 weeks of unpaid leave. Perhaps your employer offers paid leave? Check it out. Also, investigate the financial implications with respect to health care expenses and insurance. How much will that ultrasound cost, for example?
Reconstruct your budget. A baby could challenge both sides of your budget equation: income and expenses. You or your spouse may take time off from work and, depending on the situation, it could be without pay. Perhaps one of you will opt to quit work for an extended period of time?
The bottom line is that having a baby could affect income -- short and long term -- so plan for it.
And be aware, you'll face an array of new expenses: diapers, food, clothing for you and the baby, and increased health care costs. Build a budget that accounts for changes to both income and expenses.
Stockpile some cash. Whether you're going to set aside money to cushion the impact of lost income or new expenses, having a significant stash of cash makes sense. The normal three to six months' of expenses in an optimum emergency fund may not be enough, so start saving today.
Stockpile some stuff. With two new grandchildren, we've helped -- before, during and after their births -- on this front. Every shopping trip has included a little something extra. But think about it: If you spread out the purchase of nursery furniture, strollers, car seats and the like, you can reduce their financial sting (not to mention the diapers!). Also get hand-me-downs from friends, shop with coupons and get creative so you can build up what you need without going broke.
Remember, college is just around the corner. Time flies. Given that today's all-in cost of a four-year in-state public college education is over $21,000 a year, you'll have to save about $500 per month to fully fund a newborn's education. Consider a 529 college savings plan for this goal, and don't put it off. After you get it set up, you might have a new home for your family (and extended family's!) gifts to your kids.
Prepare for Tax Time. I can still remember the disappointment I felt when my son was born on Jan. 2. You've probably got to be a financial planner or accountant to understand, but his arrival date delayed our ability to take advantage of the tax benefits of having a child. With last year's Tax Cuts and Jobs Act, those benefits have increased and become available to more folks. Visit the IRS website and check out the many tax benefits for parents.
Update insurance and legal paperwork. With a new baby, you may need more life insurance. As I discussed earlier, you may want to re-examine your health coverage to ensure it fits the new situation. Taking care of legal paperwork, such as a will, that names a guardian for your child and sets up appropriate financial arrangements is another critical task.
