Preparing for parenthood means planning for a healthy physical, emotional and financial future.
Being a parent is one of the greatest jobs there is… and one of the toughest. Although you never really know what to expect day-to-day, there’s a lot of planning required to properly prepare for your child’s (and your family’s) future. Keeping everyone physically and emotionally fit probably comes natural to you. But what about being financially fit? Do you know how to keep your personal finances healthy before and after your child is born?
A child is one of life’s most precious and remarkable gifts. But children can also be very expensive. According to the Department of Agriculture, a middle-income, married couple with two children is estimated to spend $233,610 to raise a child born in 2015 – and that covers costs from birth through age 17. So, unfortunately, that amount doesn’t include college expenses.
This huge number makes it apparent that it’s best for new parents to plan for future financial success before delivery, after delivery, and beyond…
Know your health insurance coverage inside and out so you’ll be able to plan for any out-of-pocket expenses before delivery. From deductibles and co-pays to doctor, hospital and testing costs, know what’s covered and what’s not. Having this knowledge allows you to start creating a “fund” so you’ll have the money to pay medical costs once your baby is born.
Before your child is born, research life insurance policies and find one that works best, both short- and long-term, for your family. This will ensure that, should anything happen to you and/or your partner, your new child will be taken care of financially.
How much time off for maternity/paternity leave does your employer provide? Are you and/or your partner paid during this time? Check your state laws and your employer’s policies so you’ll know beforehand how this type of leave may affect your monthly income.
It’s important to prepare for an increased monthly budget. Diapers, formula, toys, pediatrician visits… small costs can quickly add up. According to Investopedia, the first year caring for your child includes most of the following:
ONE-TIME COSTS (per year)
On-the-Go: Stroller, car seat, diaper bag, baby carrier, and more – $400+
Toys and “Fun”: Portable swing, “bouncy seat”, play mat, mobile and more – $200+
Room Furnishings: Crib, bassinet, bedding, blankets, dresser, monitor and more – $1,100+
Feeding: Bottles and equipment, bibs, highchair, utensils and more – $200+
ONGOING COSTS (per year)
Infant Clothes: $700+
Diapers: Between $468 (for cloth diapers + wipes) and $1,152 (for diaper service + wipes)
Formula & Food: $1,260+
Childcare: Depending on where you live, how many hours a week you’ll need care, the type of care you choose, etc., costs could range from – $14,500+ for daycare to $44,000+ for in-home care.
Right now, it might feel like your child’s college education is way too far in the future to think about. But actually, this is the best time to begin planning how you’re going to pay for his or her tuition. Preparing today gives you enough time to budget and choose the best savings plan for your family and your specific circumstances. Here are a few of the options you might want to take a look at:
529 College savings plans
These investment accounts allow you to save money, tax-free. That means, as long as your withdraw for higher education purposes, you won’t be taxed. Anyone can contribute to a 529 account regardless of income. The lifetime maximum contribution varies among states and ranges from $235,000 to over $500,000. The money in your 529 can be used at any accredited college or university in the country.
Prepaid tuition plans
Simply stated, these plans allow you to pay for your child’s future college tuition (or a portion of it) at today’s prices. If your current financial status allows, you could pay today for a four-year degree that your child won’t use for another 18 years. If you don’t have the full amount of a four-year degree tuition, you can prepay a portion of the college expenses. Prepaid tuition plans are administered by individual states and the majority can be redeemed only at public colleges and universities in that state.
Coverdell education savings accounts (ESA)
Coverdell ESAs are very similar to Individual Retirement Accounts (IRAs), but are used for education purposes rather than for retirement. As with an IRA, you may contribute up to $2,000 a year with post-tax dollars. The money grows tax-free and is not taxed upon withdrawal, provided you use it for education purposes.
There are other types of college tuition savings programs with information available online. Remember, you have about 18 years to save. And even though it might seem like a long time away, time goes fast – especially when raising children.
Parenthood brings about many changes in one’s life, especially when it comes to finances. That’s why the sooner you start to plan (and budget… and save) the easier it will be when your baby arrives. Preparing now also gives you the opportunity to put money cares aside and focus on the more important things, like keeping your baby happy, healthy and smiling.