Congratulations! Perhaps you have just received the happy news that you are expecting or you are planning to soon expand your family. Preparing for the arrival of a new baby is a joyous time full of excitement, but it should also be a time of careful planning.
If you have no children now, you will find that your lifestyle changes drastically with the arrival of a newborn. For awhile, there is very little free time or sleep. In addition to personal lifestyle changes, you will also face many financial changes. Careful planning during pregnancy can help you adjust financially to the arrival of a new baby.
To Work or Not to Work
One of the most important decisions is whether or not one parent will stay home with the child. Often times both parents return to work because they both love their careers or because two incomes are an economic necessity. However, frequently a mother plans to return to work but changes her mind after the baby is born or when she cannot find suitable daycare. Arranging your finances with the plan that one partner will stay home is the most conservative plan and so that you’re ready for whatever decision you end up making.
How Your Mortgage May be Affected
If you make a plan based on the notion that one parent will stay home, you will want to first consider if you should refinance your mortgage before the baby arrives. Every time we think mortgage interest rates have hit their lowest point, it seems that they then fall further. Using a mortgage calculator can help you determine how much your mortgage payment can change if you refinance at a lower rate. It may make sense to refinance while both partners are still employed so you can get the best rate possible. However, another alternative is to change your fixed rate loan to an adjustable rate mortgage. You may have as many as five years before the interest rate on your ARM changes, giving the stay-at-home parent plenty of time to return to work when the child is older. Either way, if one partner does quit, your mortgage is already set at the lowest interest rate currently possible, and you may have smaller payments, which will be more affordable on one salary.
Also, consider if you will qualify for parental payments. If you are able to reduce your expenses to live on one income before the child is born, those parental payments can be considered “extra” money. You could use that money to create a larger emergency fund or to invest in your home if you refinance to a flexible mortgage. You could put the money on the mortgage now, when you have extra money, and may be able to access the extra in the future when money may be tighter.
Planning for a baby is an exciting time. If you take the proper steps before the baby is born, you can also reduce the financial stress you may feel after the child arrives, even if one parent stays home.
**Photo by paparutzi**