Whether you are thinking of having a child, have one on the way, or are a new parent, you have plenty to think about during this exciting yet hectic time. There are innumerable items to prepare, decisions to make, and considerations to implement both before and after your child’s arrival. But the busyness won’t stop after they learn how to walk, talk, and feed themselves—you’re looking at at least an 18-year commitment to raising a successful young adult.
If you are a soon-to-be or new parent, you’ve likely heard the scary statistics of how much it costs on average to raise a child. According to the 2015 Expenditures on Children by Families report, a middle-income married-couple family will spend on average $233,610 for a child born in 2015 through age 17.1 This of course varies quite a bit based on geographical location, size of the family, and a range of other factors—yet it offers interesting insight on what it could realistically cost to raise a child in this day and age. If you choose to pay for your child’s college education, that amount could rise significantly as well.
So, how do you even begin to plan for that sort of expense? The time period between finding out you are expecting a child to actually welcoming the child into your family is one that can fly by. To offer some help on the financial side of things during this time, here are six preparations to consider both before and after your child’s arrival:
Even if you have a fairly comprehensive budget already in place, completing a thorough overview of it will help you to make realistic modifications for both before and after your child’s arrival. If you don’t have a budget in place, now is as good a time as any to get one started. Take into account any child-related expenses that you know you will be purchasing in the coming months, such as diapers, clothes, furniture, accessories, and so on. Be as specific as you can, even accounting for the likelihood of increased groceries and medical expenses. A crucial element of child-rearing expenses to factor in to your budget is the cost of care for your child. If you will be taking time off work upon your child’s arrival, you may need to adjust your budget for this specific time period. If your child will be enrolled in day care at some point, begin planning for these expenses as early as you can. Your budget will likely need quite a few adjustments—connect with your financial advisor to ensure you are taking every angle into consideration.
The typical recommended amount to have in your emergency savings fund is about 3 – 6 months’ worth of your living expenses. With an additional family member to care for, your day-to-day expenses will likely increase as will the likelihood of needing extra cash for a medical expense or another unforeseen event. Prioritize boosting your emergency savings fund prior to the child’s arrival in order to be prepared if the time comes to use it.
Now is the perfect time to either evaluate your current insurance policies, including life and disability, or to consider purchasing policies if you have not already done so. Both life insurance and disability insurance serve to protect the interests of you and your loved ones by guarding against your untimely death and protecting you in the event of a disabling illness or injury, respectively. Welcoming an additional person into your family is the perfect motivator to get insured. Lastly, set aside some time to review your health insurance to understand your coverage and avoid any unpleasant surprises.
Typically, you have 30 days to add your new child to your health insurance policy. Take care of this right away to ensure there are no snags in the event that you need to cover additional medical expenses in the not-so-distant future for your child. Also, take some time to update your beneficiaries for both your life insurance policy and retirement savings account(s).
If you don’t already have a will, trust, or other estate planning documents in place, having a child is the perfect reason to get started on something. Work with a financial advisor, as well as your tax and legal professionals, to draw up a plan that fits you and your family’s needs. While thinking of what will happen after your eventual passing is probably not a topic you’d like to focus on at this time, it is necessary to ensure that should anything happen to you, your child and family will be taken care of.
College may seem like a lifetime away at this point. However, an early start on college funding can prove to be incredibly helpful in the long run. Costs of attending college are consistently on the rise and having a strategy in place early on can likely save you both money and stress when the time comes to start submitting college applications. While college funding is important, don’t use this as an excuse to put off your own financial goals, such as saving for retirement. Work with a financial advisor to develop a balanced strategy that accommodates all of your financial priorities.
Having a child, whether it is your first or your fourth, is an exhilarating time in life with much to do in what seems like too little time. Take some time out of you and your family’s busy schedule to meet with your financial advisor to keep you both organized and held accountable during this time.
With offices in 23 states, there’s likely a North Star Resource Group financial advisor close to you. Find one here.
Written by North Star Resource Group.
1 “Families Projected to Spend an Average of $233,610 Raising a Child Born in 2015.” U.S. Department of Agriculture, Press Release No. 0004.17. Last modified March 8, 2017. https://www.usda.gov/media/press-releases/2017/01/09/families-projected-spend-average-233610-raising-child-born-2015.
Financial Advisors do not provide specific tax, mortgage or legal advice. This information should not be considered as specific tax or legal advice. You should consult your tax, mortgage or legal advisor regarding your own specific tax or legal situation.
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