Thursday, 27 July 2017
It's a fact: Kids are expensive.
In 2011, the average total cost of raising a child from birth to age 18 was $226,920, according to the U.S. Department of Agriculture. And that's before you send them to college! Of course, expenses will vary from year to year, and there's no real guide on what to expect financially when you have children. There are, however, steps you can take to avoid being blindsided by children's expenses, even before you bring home that first baby.
Even before the baby comes, you can take some pro-active financial steps: Start a savings account for each baby, no matter how little you can set aside each month. Saving even $25 per month adds up to $300 in a year. Set up a savings account for emergencies if you don't already have one. The goal is to save enough to cover your living expenses for six months.
Keep adding to it for as long as you can; you might need it one day for your teenager's braces. Review your life insurance. If you don't have life insurance through your employer, purchase a policy now so that your family has some money to fall back on in case of your death or disability.
Figure out how much childcare will cost you and see if it makes financial sense for both parents to work after the baby arrives. If it makes more sense for one parent to stay home, start adjusting your budget now so you can live on one income.
The game of life is unpredictable; the day will come when you have to choose which expenses related to your kids matter most. Be prepared by prioritizing expenses before an emergency: Health and safety come first.
A good quality car seat is more important than cute baby clothes. A crib that meets all current safety requirements is essential. Ditto for doctor's visits and vaccinations. Don't skimp here! Health insurance is critical. Yes, it can be expensive but the costs of an uninsured trip to the hospital can be catastrophic. If your employer offers a flexible spending account, use it! If your employer doesn't cover you, research independent options.
Education matters. Set up an educational savings account with a state-sponsored 529 plan; it can save you taxes and help pay for your child's college or vocational school expenses. Ask friends and relatives to consider donations in lieu of gifts. Even small contributions can really add up over the next 18 years.
Don't forget retirement. Your personal "wants" may have to be put aside in favor of baby "needs," but don't ignore your retirement savings. It may seem a lifetime away, but while there are loans and scholarships available for college, there's nothing for retirement! New clothes and toys don't make the cut. Your baby doesn't care about hand-me-downs (although your teenager might). Let grandma buy the new stuff while you focus your funds on the important things.
Think ahead when planning for parenthood and you'll be on the right track for your baby's successful financial future. Start implementing these financial strategies now, and you'll not only develop good habits for yourself, you'll provide a great financial planning model for your child. That's a lesson every child can benefit from!
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