Calling soon-to-be parents "expecting" is a bit of a misnomer when considering the numerous uncertainties that come with adding a new member to the family. However, one thing is certain - parenthood is a magical, memorable, and extremely costly journey. A 2023 analysis by Child Care Aware of America revealed that the national average annual cost of child care alone is a staggering $11,582, which amounts to roughly 10% of the median income for a married couple with children. But don't worry, there are several financial strategies you can employ to prepare for these significant expenses.
Where to Put Your Money when Having a Baby
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High-yield savings accounts can be a game-changer for new parents. By swapping your standard savings account for a high-yield one, you can maximize the interest your cash earns. This means your savings will grow faster, giving you more money to cover all those baby-related expenses. The best high-yield savings accounts offer above-average returns with no monthly fees or minimum requirements. Just like traditional savings accounts, you can easily access your money. And setting up automatic savings is a breeze, so you don't have to worry about remembering to set aside funds. However, it's important to note that these accounts may have monthly withdrawal or transfer limits.One high-yield savings account that stands out for new parents is the online-only Ally Bank Savings Account. It offers a solid Annual Percentage Yield (APY) on all balances and a handy savings bucket tool. With this, you can divide your savings based on different goals, such as childbirth costs and child care expenses.Ally Bank® is a Member FDIC.Annual Percentage Yield (APY): VariesMinimum balance: VariesMonthly fee: NoneMaximum transactions: Unlimited withdrawals or transfers per statement cycleExcessive transactions fee: $10 per transactionOverdraft fee: N/AOffer checking account? Yes, if have an Ally checking accountOffer ATM card? Yes, if have an Ally checking accountTerms apply.Finance nerd tip: It might be worth investing a small amount each month in a premium budgeting app like Monarch Money. This app allows you to link your high-yield savings account and other bank and investment accounts, giving you a clear visual of your cash flow. You can also collaborate with your partner to budget as a family.MonarchCost: $8.33/month (billed $99.99 yearly); $14.99/month (billed monthly)Standout features: Net worth tracker, investment portfolio tracking, goal creation and progress tracking, budgeting and expense trackingCategorizes your expenses: Yes, but users can modifyLinks to accounts: Yes, bank and credit cards, as well as IRAs, 401(k)s, mortgages and loansAvailability: Offered in both the App Store (for iOS) and on Google Play (for Android); web version also offeredSecurity features: Utilizes industry-leading security practices, according to Monarch’s websiteTerms apply.Dependent Care FSA (DCFSA)
A Dependent Care FSA, or DCFSA, is a tax-advantaged account that your employer may offer. It can help offset child care expenses such as daycare, babysitting, and nursery or preschool. You contribute pre-tax money throughout the year and then use these funds to reimburse your child care expenses. Remember, you need to use the funds before the year ends or you'll lose them. Using pre-tax money also reduces your taxable income. The annual contribution limit is $5,000 per household or $2,500 per spouse for married couples filing separately. There's also a $2,500 limit for those earning $155,000 or more.Finance nerd tip: Once your child is born, enrolling in a DSFSA is a great financial move. It's considered a qualifying life event that allows you to change your employer-provided benefits outside the open enrollment period.529 College Savings Plan
We understand that college may not be on your mind when you have a newborn at home, but starting to save early for your child's future education is crucial. 529s are state-sponsored education savings accounts where parents, relatives, or friends can make after-tax contributions. The earnings grow tax-free, and withdrawals are tax-free if used for qualified college educational expenses like tuition, room and board, books, or tech equipment. You can also use the funds for private elementary or high school tuition (up to $10,000 per year per student), depending on the state's plan. You don't have to live in the state of the 529 plan you choose, but many plans offer state tax benefits.my529 (Utah)Information about my529 has been collected independently by CNBC Select and has not been reviewed or provided by the issuer prior to publication.Minimum opening balance: VariesMaximum overall contribution: VariesPortfolio options: 4 age-based options with various risk tolerance, which automatically rebalances each year; 10 static options based on risk tolerance and U.S. stocks and bonds (investors will need to manually change their allocations); 2 customizable options (either age- or static-based)Underlying funds: Investors can choose from Dimensional Fund Advisors mutual funds, PIMCO Interest Income Fund, Vanguard Group funds and FDIC-insured accounts from Sallie Mae Bank and U.S. BankFees and expenses: Total asset-based expense ratio: 0.131% to 0.136% for my529 target-date options; 0.130% to 0.455% for customized static and age-based options, depending on investment mix; 0.211% for stable value optionTerms apply.New York’s 529 College Savings ProgramInformation about New York’s 529 College Savings Program has been collected independently by CNBC Select and has not been reviewed or provided by the issuer prior to publication.Minimum opening balance: VariesMaximum overall contribution: VariesPortfolio options: Options include age-based options and individual optionsUnderlying funds: Investors can choose funds from Vanguard mutual fundsFees and expenses: Total asset-based expense ratio: 0.12%Terms apply.The best part is that if the child you opened the account for doesn't need the funds, you can transfer the plan to another child, a grandchild, or use it for your own qualified educational needs. You can also roll over the unused 529 funds to the same beneficiary's Roth IRA, untaxed and unpenalized, up to $35,000. Note that rules vary from state to state.Finance nerd tip: Consider a 529 college savings credit card, which automatically deposits cash-back rewards from your everyday spending into a designated 529 plan. Two of our favorites are the Fidelity® Rewards Visa Signature® Card and the Upromise® Mastercard®.Fidelity® Rewards Visa Signature® CardInformation about the Fidelity® Rewards Visa Signature® Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.Rewards: 2% cash back on every eligible net purchaseWelcome bonus: N/AAnnual fee: N/AIntro APR: N/ARegular APR: 18.74% variableBalance transfer fee: Either 3% of the amount of each transfer or $5 minimum, whichever is greaterForeign transaction fee: N/ACredit needed: Excellent/GoodTerms apply.Upromise® Mastercard®Information about the Upromise® Mastercard® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.Rewards: 1.25% cash back on all purchasesWelcome bonus: Earn $100 cash back after spending $500 on purchases in the first 90 daysAnnual fee: N/AIntro APR: 0% introductory APR for 15 months for each balance transfer made within 45 days of account opening; N/A for purchasesRegular APR: 19.74% to 29.99% variableBalance transfer fee: Either $5 or 3% of the amount of each transfer, whichever is greaterForeign transaction fee: N/ACredit needed: N/ATerms apply.Life Insurance Policy
Adding a new member to the family is an excellent reason to consider life insurance. It ensures that your family will be financially protected in case something happens to you. Northwestern Mutual® is one of the largest issuers of life insurance policies in the U.S., offering a variety of options including term life insurance, whole life insurance, universal life insurance, and variable universal life insurance. They also have high financial strength and customer satisfaction ratings.Northwestern Mutual Life InsuranceCost: The best way to estimate your costs is to request a quoteApp available: N/APolicy highlights: The largest life insurance company in the U.S., Northwestern Mutual offers term, whole life, and universal life policies. Coverage is available up to age 85, and Northwestern Mutual has paid dividends to eligible policyholders every year since 1872.Read our review of Northwest Mutual Life Insurance.Subscribe to the CNBC Select Newsletter!Money matters - so make the most of it. Get expert tips, strategies, news, and everything else you need to maximize your money, right to your inbox. Sign up here.Why trust CNBC Select?At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.Catch up on CNBC Select’s in-depth coverage of credit cards, banking, and money, and follow us on TikTok, Facebook, Instagram, and Twitter to stay up to date.Editorial Note: Opinions, analyses, reviews, or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved, or otherwise endorsed by any third party.