There are so many things to consider when having a baby. According to the U.S. Department of Agriculture's annual report, Expenditures on Children by Families, "a middle-income family with a child born in 2010 can expect to spend about $226,920 ($286,860 if projected inflation costs are factored in) for food, shelter and other necessities to raise that child over the next 17 years." That doesn't even include college! The USDA also has a calculator to help you determine what your personal child care costs might add up to. To help you get started, I've created a financial checklist.
Here are some things you can do to prepare for the expense of having a child:
⬰ Health Insurance - Review your health insurance to make sure it adequately covers the type of check ups and exams you will need as well as the birth. Consider switching insurers (if you have that option) or making adjustments to your coverage before you get pregnant or have children to ensure you have adequate coverage.
⬰ Estate Planning - Make sure you have guardianship provisions in place for the care of your new baby. That way, if something were to happen to you, you (not a court) is deciding who is caring for your child. There are other foundational documents such as a Will and Health Care Power of Attorney that you should also have in place. For more information on the subject check out my post titled Estate Planning Basics.
⬰ Life Insurance - This is an important tool to protect your family from the financial burden that would result from your death. Another past post of mine, Do I Need Life Insurance?, was devoted entirely to this topic. It examines the types of life insurance, amount to purchase and other key details.
⬰ Emergency Fund - A pool of money set aside for a true emergency is one of the most important things you can do to establish financial security. The general rule of thumb is to have three to six months of expenses allocated for this purpose. This becomes even more critical when you have kids. Pad your emergency savings account and bring it up to the full six months or maybe more. If just depends on your own personal comfort level.
⬰ Tax Changes - Include the Child Tax Credit when filing your next return. The IRS provides 11 tax tips here.
⬰ Spending Adjustments - As noted above, raising a child is expensive. So you'll need to adjust your budget. You might consider cutting back spending before the baby arrives and put those funds towards other checklist items. There are also helpful blogs for parents that include money saving tips and offers such as A Busy Mom Of Two.
⬰ College Savings - There are a number of college savings vehicles, but the most important factor is saving early and often. 529 College Savings Accounts are offered by each state. They have some restrictions; for instance, money can only be used for the cost of higher education, but they also have tax advantages. In order to be most effective, open an account when your child is young. Also, encourage friends and family to contribute to this account for holidays and birthdays in lieu of other gifts.
Check off the items on this list to prepare as much as possible for the latest addition to your family and continue to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.