Planning a Family – What to Save for Right Now
The decision to start a family is a joyous one, but also one that may lead to increased stress, especially financially. With the cost of raising a child now exceeding $230,000*, it can be difficult for young families to achieve other important goals. But if you plan ahead, you’ll be better prepared for the unexpected, and reduce the chances of being in a cash-crunch.
Here’s what many new parents see as the most essential questions to consider when financially preparing for a new arrival:
- Will you require parental leave from work?
Ask your employers what they provide in terms of time off and paid leave. Beyond that, determine what you can afford in time off, since you will need some savings to offset any reduction in income.
- What are your child care needs?
If you live in or near a major city, childcare can cost upwards of $1,500 a month or more. Depending on your financial situation, you may want to consider alternatives such as employer daycare, nanny-sharing, reducing work hours, or working remotely.
- If you or your partner want to become a stay-at-home parent, you’ll need to consider the impact losing a second income may have. It may be a good idea to speak with a financial professional and develop a plan to ease your transition to a single income.
- Have you paid down your debt?
Trying to balance the additional expenses that come with a new family member and costly interest charges can be tough. Debt elimination should be a priority.
- Are your papers in order?
You need a will that includes guardianship arrangements.
- Does your life insurance cover your family’s needs?
You may need to change your current life insurance plan so it will fully cover your family’s needs – enough to provide for a surviving parent and child, pay off debt, and fund a college education. This is something you should have in place before your baby arrives.
- Is your health coverage up to snuff?
Review your policy to determine if it has the right coverage for a family. You will also need to add your child to your policy.
- Have you budgeted for increased utility bills?
You’ll be doing several extra loads of laundry a week, so expect to see an increase in your electric and water bills.
- Can you afford the supplies a newborn needs?
The constant stream of supplies a growing child needs can be pricey. Consider a membership to a wholesale warehouse store so you can buy supplies in bulk.
- What is the cost for baby-proofing everything?
Take a complete inventory of what you’ll need to bring your house, car, and yard up to baby standards.
Depending on your income, you may qualify for a Dependent Care Tax Credit. It may be worthwhile to check with a tax professional to determine what tax savings you might be able to realize once your child is born.
A Family Emergency Fund is Your Top Savings Priority
When you add up all these new family essentials, it’s easy to see how a family’s budget can increase by over $1,000 a month, and that doesn’t include any unexpected expenses. While you’re budgeting for the financial changes a child will bring, you should start building your emergency savings fund. At minimum, you should have a cash reserve of 12 months of living expenses based on your new family budget. So before saving for anything else, including a bigger house or state-of-the-art baby gear, allocate savings for your emergency fund.
There are a lot of aspects to consider when growing your family, but with careful planning, you can better prepare yourself for the financial changes that come with a newborn. Not sure where to start? Schedule a meeting with one of our financial professionals today!
* Based on 2015 Expenditures on Children By Families Survey
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2021 Advisor Websites.