Babyproofing Your Finances

This morning I was a guest on Your Turn With Mike Causey, a regular show on Federal News Radio. We discussed how to navigate life events and still keep your head above water. This is particularly helpful for new parents who have introduced into their lives not only a bundle of joy but a bundle of expenses and tough choices as well. Whether you are welcoming child #1 or child #4 into your family, here are some tips to help you keep your bearings:

1. Once the baby is born you have 30 days to change work-related benefits that you normally only get to change during open season. The birth is considered a "qualifying life event" that triggers the 30-window for benefits changes. Take the opportunity to adjust your health insurance, medical and dependent care Flexible Savings Accounts for the new baby-related expenses. If you miss this window you will have to wait until open season again to start saving taxes.

2. Automate your savings and bill-pay. Over the next several months you'll be surviving on precious little sleep. If you're lucky you'll remember the last time the baby ate, napped, or even the names of your other children. Chances are that a student loan, credit card or car payment will slip through the cracks. If it does your credit score will suffer and the late payment will haunt your credit report for 7 years. Before the birth spend 30 minutes online and set up your payees and automatic payments. Your credit score will thank you.

3. As soon as the baby is born submit a new W-4. This form, available through your HR department, allows you to increase your take-home pay by increasing your withholding. The idea behind withholding is for your employer to withhold from your paycheck the amount you expect to owe in taxes that year. Since the IRS gives you a tax break on every dependent you will owe less taxes. Thus, increasing your withholding simply reduces the amount your employer needs to put away to pay your reduced tax bill. The W-4 is processed right away so by the time you're paying for diapers there's more money in your paycheck to cover it.

4. Be flexible to the idea that you may change your work plans once the baby is here. I have seen many clients expect to want to immediately go back to work or stay home altogether, then change their minds once the baby is born. Keep your options open. Wait a few years after the birth to purchase a home or upgrade to a larger home. It's tempting to get the home purchase "out of the way" before the kids come but it paints the family into a financial corner. And as many of us have learned the hard way, it's pretty expensive to get out of a home we can't afford.

Your family will last a lifetime. Make sure you cover your bases with a budget, an emergency fund, life insurance and retirement savings - then move on to home ownership. Be a professional now. Be a parent now. Be a homeowner when you know you can handle it.