Welcoming a new baby into the family is an exciting and emotional event. You anticipate the birth of your child for months, sometimes years and when it finally arrives, you’ll often find yourself overwhelmed with the responsibility. U.S Department of Agriculture statistics from 2013 revealed that raising a child from birth to the age of 18 can cost anywhere from $245,000 to $455,000, so ensuring the financial security of your child throughout their lives is one of the biggest tasks any parent will face.
If you’re feeling the stress of the financial burden already, never fear — we’ve broken down what you need to do in order to plan for your baby to-be.
Prenatal care, labor, and delivery — the process of giving birth can incur some heavy medical expenses. Make sure you’re aware of what your health insurance does and does not cover so you can budget for necessary out-of-pocket expenditures.
Within 30 days of your child’s birth, you’ll need to add them to your or your spouse’s health insurance plan if separate. Look to see which plan provides better care for your dependants, and the potential savings benefits offered by each before adding your child. If you have an employer sponsored plan, make sure to talk to the relevant department before the birth so you’re well aware of the process.
If you don’t have one already, now is the perfect time to consider getting life insurance. You want to make sure that your child is covered in case your family loses one of its primary sources of income. The price of a new plan will be dependent on your age; lifestyle and occupation so talk to a consultant or broker to figure out how much coverage you need. Disability insurance may also be something you want to opt for at this point to guard yourself against any financial effects of being unable to work for an extended period of time.
This is an appropriate time to either write or update your wills. Amongst the considerations you need to take are:
Who will raise your child if both you and your spouse die? This person needs to be informed of their responsibilities beforehand, and be designated as a legal guardian. This usually means that they will be responsible for the management of any assets and money, until your child is of age. If you have anywhere over $100,000 in assets, we recommend setting up a trust in order to protect your child from any future tax and legal consequences of taking control of them after your death.
Right off the bat you will need to decide whether one of you will take up the role of a stay-at-home caregiver or whether you’ll need to hire outside help. Remember that while you’ll save money by staying at home you’ll need to account a possible loss of secondary income in your monthly budgeting.
You must also carry out a financial analysis and re-assess your current monthly expenditures, income and savings with a view to carving out a 6 month emergency fund that can cover living expenses and any unexpected costs. You should also be planning for all the requirements of a new baby, including diapers, formula, daycare, a crib, strollers and any increase in insurance premiums.
Will you be able to pay hundreds and thousands of dollars to ensure your child’s further education? With the average cost of college tuition only rising, it’s never too early to start a college fund. However you must balance your child’s needs with your own financial wellbeing in later life — there are loans, scholarships and grants available for college education but none so readily available for your retirement. Most financial planners recommend putting any savings into your retirement account before contributing to your child’s college fund.
If you are putting away any college savings, use a 529 account that will allow you to invest any after-tax savings, with the resulting income being tax-free as long as it’s used to pay for college.