The Pre-baby financial checkup (part 1)

If you’re serious about starting a family in the foreseeable future, there’s no time like the present to get your financial house in order — to consider how starting a family is likely to impact on your financial situation over both the short-term and the long-term. Here are the key issues you and/or your partner will want to zero in on as you prepare to embark on Operation Baby:

■ Are you carrying an excessive amount of debt?

If you’re juggling student loans and car loans, and carrying balances on more credit cards than you’re prepared to admit, this is the time to focus on debt reduction. Pay off your debts as aggressively as possible and consider getting rid of all but one “emergency” credit card (ideally a no-fee, no frills credit card that charges a rock-bottom interest rate).

■ Are you paying an excessively high rate of interest on any outstanding loans?

If you’re paying an exorbitantly high rate of interest on some of your loans — or, even worse, carrying a huge outstanding balance on your credit card — you might consider refinancing some of your loans at a more attractive rate and/or applying for a lower-interest debt consolidation loan to save yourself some money on interest charges.

■ Do you have an emergency fund that is equivalent to three to six months worth of net income?

While you might have been willing to fly by the seat of your pants in your pre-baby days, now that you’re assuming responsibility for another human being, you will want to start building up a small nest egg. That way, you won’t be caught totally off guard if you happen to lose your job or find yourself faced by some other unexpected financial crisis.

■ Are you at least breaking even on a month-to-month basis?

There’s no doubt about it — this is the most painful part of the financial tune-up process: the financial world’s equivalent of paying a visit to the dentist. But it’s really important to get a handle on whether or not you’re managing to balance your budget each month. The only way to do this is to pull out your financial paperwork (bills, statements, etc.) and analyze your income and expenses on a month-by-month basis. Then, after you tally up your income and expenses, you’ll have a sense of whether or not you’re keeping your head above water financially. You will also want to consider what budgetary modifications may be in order when baby makes three. (If your income is going to drop significantly, you’re likely going to have to have to tighten things up on the expense side of the ledger, too.)

■ Do you have an up-to-date will (or any will at all, for that matter)?

If you’ve been making like Scarlett O’Hara and postponing that will-writing exercise until tomorrow, we’ve got news for you: tomorrow is officially here! You see, once you have dependents, you are responsible for ensuring that they will be taken care of should anything untoward happen to you. If you were to die without a will, you would give up your right to designate a guardian for your child — reason enough to set up an appointment with your attorney today.

Continue to part 2...

Source : The Unofficial Guide to Having a Baby. Second Edition . Ann Douglas and John R. Sussman, M.D. 2004