If you’re like many young adults, having children is one of the biggest life-altering choices you’ll ever make. Joy, stress, excitement, exhaustion, hundreds of books on how to not screw up and thousands of bucks to prepare for your little one: Your plate is now loaded. Here are some considerations to make sure you’re prepared – at least in terms of money.
First, got $250,000? According to CNN Money, it costs the average middle-income couple a minimum of $241,080 to raise a child who was born in 2012. And that’s per child. If you want a big family, you face upwards of seven figures just to get your kids out OK some 20 years from now.
Of course this enormous bill won’t hit you at once, and I’m sure plenty of Americans raise kids on less. This statistic does highlight the need for some serious planning and organization even as you wallpaper the nursery. In short: Rework that budget.
Savings. Build emergency savings to cover three to six months of living expenses. Err on the side of caution if your household will have only one income after the birth. Remember that you want this money accessible; don’t sink it into the stock market or tie it up elsewhere.
New spending. Factor in new or higher expenses such as diapers, wipes, formula and baby food. Start pricing these items and determine if you need to adjust other areas of your budget to compensate.
Transportation. What does your current car situation look like? Does your vehicle offer safe and adequate room for a child’s car seat? Will you need to put aside money for a second or replacement vehicle? Set a plan to work toward this goal.
Medical costs. Always read the fine print on your insurance policy regarding coverage throughout the pregnancy, and understand that your premiums and co-pays may increase once your baby arrives. Check with your employer’s human resources department for any tax-advantaged health-spending plans.
Also, you typically have up until 30 days after birth to add your baby to your insurance. Do not miss this window.
Childcare. The U.S. Census Bureau reports that childcare costs skyrocketed in recent decades. Explore your costs for daycare groups, individual care, or your own nanny. Are you or your working spouse planning to switch to become a stay-at-home parent? Sketch out what your new financial picture will look like with one income instead of two.
College. Hope to assist your children with higher education? Given these ever-increasing costs, plan to start saving as early as possible. Your retirement comes first, though: Your kids can take out loans and get scholarships for college. Nobody will lend you money for your retirement.
Recently I also put out a call from real new parents to offer tips. Responses ranged from buying wipes from Costco and diapers from Target to automating your savings and investing before the baby upsets your household schedule.
Among other money-saving tips:
- Network with other parents and families to trade clothes and items such as playpens and swings.
- Create a budget for wine.
- Never go to the grocery store without a list.
- Don’t buy every big-ticket item prior to your baby coming; borrow such items as baby carriers from friends for a test drive.
- Don’t be loyal to pricey brand names.
The thought of not being around for your family and children is undeniably unpleasant. Your estate plan, though, is not about you but about protecting your loved ones.
Wills. Whether or not you have a will, either review it or implement one. A will not only makes sure your assets get distributed according to your wishes, it allows you to assign an executor to handle matters associated with your estate and select a guardian for your children.
Guardianship. With whom do your children feel most comfortable and who can most responsibly and effectively control inheritances until your kids turn legal age? Consider the values, beliefs, and overall emotional comfort your chosen guardian might provide – and discuss your decision with those you choose. You need a contingent guardian if your primary is unwilling or unable to serve.
Trusts. A trust includes instructions on how you want any funds left to your children to be spent. You can also appoint a trustee (primary and contingent) to manage the funds.
The right kind of insurance ranks just as important as a spending and estate plan. Evaluate your existing life, health, and disability coverage.
Life insurance helps your family if you or your spouse dies prematurely, replacing any income lost. Term policies, which set a duration on your coverage, tend to be the most affordable type of life insurance.
Be sure to consider factors such as your current income and outstanding debts, savings and assets, and even your household role in terms of yard work or keeping the place picked up (your family pays for such services if something happens to you).
If you’re like many people, even though your ability to earn an income is one of your greatest financial assets, you tend to overlook disability insurance. This kind of policy pays you a percentage of your current income, ongoing, if you become disabled and can no longer work.
(Find additional money tips for parents-to-be here.)
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Mary Beth Storjohann, CFP, is the founder of Workable Wealth, an RIA in San Diego. She is a writer, speaker and financial coach who is passionate about working with individuals and couples in their 20s and 30s to help them organize and gain confidence in their financial lives. She has been quoted or featured in various industry publications on the local and national level. You can find her on Twitter at @marybstorj.
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