Thursday, 7 May 2015
Everything changes when you have a baby—especially your finances.
The cost of raising a child born in 2013 to the age of 18 is estimated to be $245,340, according to the U.S. Department of Agriculture. That's a mind-boggling number, but you can take some simple steps to prepare financially when you're expecting.
If you and your spouse are both covered by separate health insurance plans, review both them thoroughly. Crunch the numbers, and figure out which offers the best coverage for pediatrician visits, vaccines, and hospitalizations.
The primary goal of life insurance is to provide financial resources for the surviving spouse and children if one spouse happens to pass away early. Kiplinger suggests purchasing a policy that will provide four to five times the annual salary of the primary breadwinner. Term life, according to the New York Times, offers the least expensive way for young families to get this coverage. A policy should be purchased for either—or both—parents, with the surviving spouse being named the beneficiary.
Not having a will was fine when you were in college or even a newlywed. But now that there's a child on the way, it's important to prepare one. Designating a guardian for your child is the most important to do. According to NBC's "Today" financial editor and author Jean Chatzky, your will, estate plan, and other legal documentation should also include a living will, healthcare proxy, and durable power of attorney.
Can you afford to stay home? Do you even want to stay home? Does your company offer paid leave, and if so, how long? You need to carefully consider the costs as well as the possible career ramifications of taking unpaid leave or quitting your job altogether. Chatzky has created a worksheet to help parents determine if staying at home is an option.
If you decide staying home won't be part of the plan, start researching child care options. Weigh the pros and cons of using day care versus a nanny—and make sure to begin your search a few months before your baby is due. Some day care centers have waiting lists.
A new baby brings a lot of extra expenses. The cost for child care in the United States can be over $14,500 a year for an infant, according to a 2014 survey by Child Care Aware of America. Chatzky recommends reviewing your budget before the baby arrives and finding places to cut back. You definitely won't be eating out as often, and you're probably not taking any expensive vacations for a while. Add in other expenses related to your baby, like child care, well-baby visit copays, diapers, and an emergency fund.
The national average cost of attending a four-year public university is now more than $28,000 a year Consider if it's a good idea for you to start saving in a 529 Education Savings Plan. You can set it up in your child's name—even before the birth—and anyone can make tax-advantaged contributions to the account. This is becoming common, and parents are now encouraging family and friends to make contributions in lieu of baby shower gifts.
Babies don't need thousand-dollar strollers, $5,000 cribs, or designer onesies. It's easy to get anxious about being a good parent that you think you have to purchase the latest and fanciest baby gear. You don't. Think about the long term, and spend conservatively on the basics—crib, stroller, car seat, and clothing. Let grandparents and friends splurge on the duds, or better yet, ask them to contribute to your child's 529 Education Savings Plan.
Having a baby is a wonderful time in your life—but it can be stressful and overwhelming. Try to do as much thoughtful planning upfront as possible, so you can keep calm, relax, and enjoy your new bundle of joy.
Consult your own attorney or tax advisor regarding your specific needs.
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