How to Financially Plan Childbirth
You’ve probably heard the phrase “kids aren’t cheap,” but to be precise, raising a child under 17 will cost you about $ 233,610 , according to government figures.
That number might make you wonder if you’re ready to have kids (on paper at least), and you won’t be alone: a recent Policygenius poll found that 42 percent of parents think they’re financially unprepared. have a child, and 32 percent said they were most worried about paying off existing debt.
Make a financial plan for raising a child
Undoubtedly, parenting is a major financial undertaking, but it is also a long-term financial goal, spread over nearly two decades, that can be managed through careful planning. If the shock of the stickers has forced you to reconsider your decision to have a baby, think about the following things you need to plan, and do it gradually – this can help you prepare for the costs of parenting.
Make a preliminary budget for your child that includes medical expenses.
The costs of protecting your home from babies, baby monitors, strollers, feeding devices, and cribs need to be researched and accounted for, but you also want to know your personal medical costs for things like check-ups and childbirth. too much. For example, according to Castlight Health , the average cost of routine maternity care is $ 8,775, but that can also vary by thousands depending on where you live. Take a close look at your health insurance to understand what it covers (the average serious shipping costs $ 6,075 and the average co-pay is 19%, which is just over $ 1,200, according to Investopedia ).
Make a budget after delivery
The cost of diapers, childcare, and food may increase. Also, you will need to figure out how much you will have to pay for daycare, as it is very expensive. According to The Balance, the average monthly cost of infant and toddler care is around $ 1,000. This budget should also include careful accounting of your income, especially if one parent works fewer hours. To see the expected cost per child, try using the Child Budget Calculator .
Check your insurance
If you don’t already have life insurance, now is the time: if you are young, urgent life insurance is an inexpensive option – often less than $ 30 a month if you are under 30. Now that your child or your spouse’s earning potential relies on you, you should consider disability insurance, which can often be purchased directly through your employer. In addition, having a baby may qualify you for a special enrollment that will allow you to adjust your health insurance benefits — see Healthcare.gov for more information on your health insurance options .
Write a will
As a young parent on a budget, you may feel comfortable giving up future inheritance planning, but you still need a will to appoint a guardian for your child . This is important: in the event that you and your spouse die together without a guardian specified in the will, your child’s guardian will be chosen by the state .
Maximize Your Emergency Fund
Before you start bookmarking baby name ideas, take a look at your current budget and your emergency fund. Do you have six months of expenses? Keep in mind that your six-month financial needs after birth will be different and adjust accordingly.
Accelerating debt repayment at a high rate
If your emergency fund is full, focus on paying off high-rate debt, such as credit cards or personal loans. Think of it this way: If your debt is making you tense, imagine how it might affect you when you are caring for your child. However, paying off a smaller, non-toxic debt by paying into a retirement fund isn’t always smart. You might want to consult with a financial advisor to figure out the right balance between paying off debt and saving for retirement ( this post from Nerdwallet also lays out some important considerations).
Boost your retirement savings
If you have a healthy emergency fund and have tamed your debt, move on to increasing your retirement savings. Securing your financial future ensures that your child does not pay for your expenses at retirement age. As the old proverb about personal finance reminds us, “You can get an education loan, but you can’t get a loan to pay for your pension.” Start an IRA or maximize your 401 (k), especially if your employer is offering matching premiums. Even a 1% increase in your retirement savings can improve your financial position in the future.
Consider Plan 529
The 529 Plan is a tax-friendly savings plan designed to pay for higher education. Earnings rise without taxes, and exemptions used for education are exempt from federal taxes, as well as state or local taxes. Many states also offer residents a full or partial tax credit or deduction for contributions to their state’s plan.
Financial planning can help you identify unforeseen expenses and give you an idea of what you may need to reduce on other non-childbearing household expenses (such as discretionary travel or meals). Budgeting for a quarter-million-dollar financial goal is not easy, but it will give you the confidence that you know you’ve taken into account your family’s financial future.
This story was originally published in 2019 and updated on December 7, 2020.