Baby on board? Plan your growing family’s financial future.
Kids are expensive. From diapers to college, the cost of raising a child is a significant factor in every family’s monthly finances. Experts estimate the average cost of raising a child in the U.S. from birth to age 17 can top $200,000. Whether you are just considering starting a family or already have a baby on the way, taking a few simple steps now can help you financially prepare for the road ahead.
Build a budget.
The first step of any financial plan is analyzing your monthly income versus expenses. You should already have a monthly budget, but if you don’t, now is the time to make it a priority. Online tools like the budget-builder at com can help you easily establish a budget and stay on track to meet your goals.
Once your current monthly budget is set, consider how your expenses will change when baby arrives. Identify any current debt that can be paid down ahead of baby’s arrival to help free up extra cash for new expenses. First-time parents should plan for one-time expenditures for nursery items in addition to new regular expenses, which might include:
- Diapers, formula
- Medical expenses
Make sure to also consider any additional major purchases that may be required to accommodate your growing family. Will you need a larger vehicle? Are you planning to buy a home?
Update your insurance plans.
If you have a high-deductible health insurance plan and contribute to a health savings account (HSA), increase your contributions to build up a larger pool for covering birth and early childcare costs. Visit with your financial advisor to ensure you have the proper short-term and long-term disability insurance coverage in place. When baby arrives, don’t forget to update your financial accounts and life insurance policies with the proper beneficiaries.
Identify a guardian.
Who will take care of your child if something happens to you? Many parents overlook this very important question or never make it official. Update your will or estate documents to include your new child and identify who will take on legal guardianship of your child if tragedy occurs.
Establish a savings plan.
College is often the first thing that comes to mind when you think about raising children. So why is this the last step on the preparedness list? The answer is simple: it is impossible to properly save for the long term without near-term budget plans. Once you’re comfortable with current and near-term spending, then you can identify the best way to save for college. Options such as 529 plans are best when established early in your child’s life, but can be considered at any time. Other parents may opt for a simple savings account. Your financial advisor can walk you through the various approaches and help you choose the best fit for your family.