Children Bring Changes to Life-Planning Considerations
Financial planning for yourself and your spouse has been a success so far. You set up your 401(k), your IRA, and an emergency fund. But now, the two of you are ready to have children, which means you will become financially responsible for another person. Children are expensive before they even arrive, so you should start saving money for them as soon as possible.
Don’t panic if you already have kids or have one on the way. It’s never too late to start saving! The important thing is to start. Financial stress is at the root of many marital problems that can lead to bigger problems over time, but planning ahead and budgeting means you’ll not only be able to better provide for your child, you’ll also protect your marriage and your mental health
In the Beginning
Everyone seems to know that having a baby and raising a child are expensive. However, there’s not a magic number to tell you exactly how much it will cost. Too many factors affect the price, including your location, your access to help through friends and family, breastfeeding versus bottle feeding, the health of your child, cloth versus disposable diapers, and so much more. With that being said, you can use a baby costscalculator to estimate your expenses.
Keep in mind that the expenses of raising a child in the first year don’t take into account the child-related costs that come before the birth, including the medical expenses for prenatal care, the birth of the child, and the numerous doctors’ visits within the first year. Even if your baby is healthy, he or she will need frequent wellness visits until he or she reaches 12 months of age.
Perhaps the single most important thing you can do to help secure your little one’s financial future is to get life insurance if you don’t already have it. According to Haven Life, not only will life insurance give you and your family peace of mind, but it’s also a tax-free way to protect your family in the event of your passing. You can use an online calculator to help you determine how much you’ll pay in premiums to help you factor payments into your budget. Now is also the time to create a will and name a guardian for your child in the event you and your partner unexpectedly pass away. Planning for what will happen should tragedy strike is a difficult task, but it’s an important one, especially when it comes to your child’s future.
Most parents want to put away money to help pay for their child’s college tuition and fees. However, they typically underestimate thecost of college. Some experts believe that a four-year college will cost around a quarter-million dollars by 2030. Even if these numbers are off, college is by no means cheap right now. In the 2016–2017 academic year, a moderate college budget for an in-state public college averaged $24,610. While you can save for college in a standard savings account, special education accounts, such as a529 College Savings Plan or aCoverdell Account, provide tax advantages and have a minimal impact on financial aid eligibility.
To help alleviate the stress of wondering how you’re going to save enough to pay for your child’s education, think of paying for the expenses in terms of a pie broken into thirds. Your savings will fund the first piece. The second will be funded through whatever cash flow you have when college begins. Your child should cover the final piece through scholarships, financial aid, or a part-time job. Having your child help pay for their tuition motivates him or her to make good grades to earn scholarships, and to graduate on time to keep loan amounts to a minimum.
Having children completely changes your financial plan. From medical bills and diapers in the beginning to cars and college later on, children require a lot of budgeting. Start planning early, and keep in mind that even small, consistent savings add up, and you can always reevaluate your finances as your circumstances change.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.