How to Prepare Financially for Baby Number Two
Whether you just found out you’re expecting or are starting to think about growing your family, there’s lots to plan as you get ready to welcome a second child to your family unit. Since you’ve already gone through this experience once before, it should feel easier this time around—but there are a unique financial implications to having a second child. So, as you start working on your list of baby names, make sure you’re taking some time to consider how another child might impact your finances and prepare a budgeting plan accordingly.
What to Expect When You’re Expecting, Again
If you’re not sure where to begin when it comes to allocating a budget for your new baby, start with these three questions.
Can You Currently Afford Childcare?
On average, childcare costs around $1,520 per month for an infant and a toddler in Pennsylvania. Can your current household income afford that? Or would you have to dip into your savings? Are there any expenses that you can cut back on? In any case, it’s important to build out a savings plan that helps you give your children the care they deserve while still letting you put money towards your family’s future.
Should One of You Stay Home?
With the costs of child care being what they are—Pennsylvanians pay an average $10,681 per year at child care centers—you may want to discuss whether it makes sense for one parent to stay home instead. This can be an easy decision if one of you does freelance work or has the option to work remotely, but might otherwise mean giving up a source of income.
Do You Have Enough Space?
Make sure you’re also looking beyond the numbers. Even though they may be small, babies need a lot of space. Your current dwelling might be just right for a family of three, but does it have room for one more? While you may be able to make it work during the first couple of years, you may want to look for a bigger place in the future. If that’s the case, dedicate a part of your budget to saving for an upgrade.
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What Else You Can Do to Prepare
Now that you know some of the costs, welcoming baby number two may seem like a daunting prospect. But there are a number of things you can do to make sure you’re prepared.
1. Understand the Tax Benefits
With the passing of the Tax Cuts and Jobs Act in 2017, the federal Child Tax Credit went up from $1,000 to $2,000. Parents can claim this credit for each child up until they turn 17 years old. These credits can help reduce your IRS debt and make it easier for you to save for important financial milestones.
2. Consider Hand-Me-Downs
As you know from your first child, babies need a lot of equipment. If you kept all of your stuff after the first-time round, great! If not, consider saving money by buying these items second hand or borrowing them from friends and family members with toddlers of their own. And while you’re there, ask if they have any baby clothes packed away, too. If they end up having another child, you can always return the favor.
3. Save Early for College
While you still have years to agonize over where your children might go to college, it’s a large financial consideration if you’re planning on contributing to their education. Tuition at the University of Pennsylvania costs over $51,000 per year, and if you’re looking at the Ivy League, that number only goes up. To help you save early, the Keystone state has the 529 College Savings Program, which accommodates different levels of risk tolerance, and offers tax-free withdrawals from the account. Alternatively, for any of your savings needs, you can also use a high yield savings account, which offers guaranteed returns.
At Citadel, we understand that getting ready to welcome a baby can be both an exciting and scary time. Whether you need help planning for the future or want to open a Kids Club account for your children, feel free to call or visit us today.