Financially Planning for a Baby
Financially Planning for a Baby
Raising a child isn’t cheap. According to the Institute for Family Studies, the average cost of raising a child from birth to 18 in the United States is over $230,000. Raising a child requires lots of financial planning, both before and after birth. If you’re expecting, adopting, or hoping to have children in the near future, below are some tips to keep your finances in line.
Budget
Just like with any major expense, financial planning is key. If you’re expecting or adopting, it's crucial to draft a budget both before and after your child arrives. Caring for a child means you’ll have less disposable income, so it's wise to evaluate and reconsider your current spending habits. It’s also a good idea to look at what your health insurance policy covers, and which medical expenses related to childbirth/childcare you’ll have to pay out of pocket. When budgeting, keep in mind the costs associated with baby essentials, like diapers, food, clothes, and others. If you’re looking to save on baby-safe toys, clothes, or equipment, consider purchasing them secondhand.
Review Insurance Options
Before bringing your baby home, there are three insurance-related topics you need to review. Reviewing your health insurance policy is important to knowing which birth-related medical expenses will be covered. If you plan to add your child to your health insurance policy, reviewing it is also wise to better understand which medical services are covered. Starting a Health Savings Account can help pay for expenses related to pregnancy, birth, and childcare. Life insurance is another thing to keep in mind, both for yourself and your child. Enrolling yourself in a life insurance policy can protect your children in the event of your death, as it covers funeral costs, mortgage payments, and even the cost of your child’s higher education. It’s also wise to open a term life insurance policy for your child in the unlikely event of their death. Additionally, opening a disability insurance policy can protect you and your family in the event of serious illness or injury that prevents you or your partner from working. Just ensure your coverage is enough to pay for several months' expenses, including mortgage payments, childcare, and other bills.
Start an Emergency Fund
Kids are prone to accidents. Expecting parents should immediately open and contribute to an emergency fund. This fund can be used to pay for a number of unexpected things, like medical bills, job loss, and more. When starting an emergency fund, a good rule of thumb is to ensure you have enough to cover three to six months of living expenses. Even if you’ve met this goal, it’s still a good idea to contribute funds. You never know what life may throw your family’s way!
Save for College
College is expensive. The earlier you begin saving for your child’s higher education, the better. One of the most popular ways to save for your child’s college expenses is by starting a 529 plan. Parents can contribute up to $18,000 per child per year before reporting their contributions to the IRS. Withdrawals from 529 accounts are also tax-free as long as they’re being used to pay for qualified expenses. Even though scholarships and grants may cover your child’s college costs, receiving these is not guaranteed. The best way to financially prepare your child for college is by actively saving now.
Don’t Forget Retirement
Although your main financial focus may be on your child after welcoming them to your family, it’s important to stay on top of your own financial goals. It can be easy to neglect contributions to your retirement account when buying and saving for a child, but it’s crucial to continue setting aside money for retirement. Even though your disposable income may be significantly tighter after having a child, find ways to save before and after your child’s birth to avoid wrecking your wallet and financial future. Keeping up with your retirement account is not only pertinent to your financial well-being, it’s also key to your child’s financial well-being, as they’ll be less likely to have to support you when you reach retirement age.
Having and raising a child can be an exciting time in one’s life. It can also be a financially difficult one. Before welcoming your bundle of joy to the world, ensure your finances are in check. After all, your child’s quality of life relies heavily on your financial literacy and well-being!
Hunter Morrison
About Hunter Morrison
Hunter has freelanced for various print and radio publications across Northwest Florida, including The Bay Beacon, Navarre Press, Inweekly, Crestview News Bulletin, and WUWF. He was also the Editor in Chief of the University of West Florida’s student newspaper, The Voyager. In 2023, Hunter moved to Kenai, Alaska to take up a news reporting position with KDLL Public Radio. For fun, Hunter enjoys cross-country skiing, hiking, photography, thrifting, traveling, and looking for the best Thai food around.