The federal government estimates that it will cost more than $245,000 to rear a child to an adult. That includes costs like housing, which you'd be paying regardless of whether or not you have kids, says moneyrates.com in its recent post “7 financial moves to make before your first child.”
There’s no way to escape the fact that your kids are going to cost much of your paycheck. Plus, there’ll be unexpected costs like medical bills, music lessons and school events. With that in mind, here are some tips to start your family on firm financial ground before the bundle of joy arrives.
- Are you ready for kids? It’s the toughest job there is, and being a parent is an emotional and financial commitment. Both of you must be on board with the decision.
- Set your life and financial priorities. Both parents should commit to having a child and agreeing to work within their current means to meet their family's needs. To do that, parents need to discuss and agree on a set of financial priorities. Topics to discuss include things like public or private school, funding his or her college education, annual vacations or purchasing a vacation home, child care, and housing needs. You can also survey parents on what expenses they've had with their kids to learn more and identify any missing items.
- Make a budget. A sound household budget is critical to being financially stable in preparation for a baby. Talk about family priorities in advance of creating a budget. A couple's shared vision will shape how they plan to spend and save their money.
- Create an emergency fund. You should have an emergency savings account in the bank, and if you’re a single income household, maintain a fund large enough to pay for six months of expenses. A fully funded emergency fund helps you survive a financial storm.
- Review your insurance needs. You should look at your insurance coverage. For the immediate future, you should know how much your health insurance deductibles and co-pays will be for labor and delivery charges, as that’s what you'll have to cover out-of-pocket. You’ll then need to add your child to your policy within 30 days of his or her birth or adoption to ensure your child will be covered. For the long-term, consider whether you have enough life insurance. A good rule of thumb is 15 to 25 times your annual income. Parents should also make sure they have disability insurance, which can bridge a financial gap in the event that a parent can no longer work.
- Update beneficiaries and discuss guardianship in estate planning. The birth or adoption of a child is a perfect opportunity to review beneficiary information on insurance policies, bank accounts and retirement funds. Talk to an estate planning attorney about drawing up a will and assigning guardianship of your child.
- Have a Plan B and a Plan C. You should know what to do in a worst case scenario. This helps couples create workable a Plan B and Plan C to put into action in the event of a crisis.
A child means a serious financial commitment, but one parents can address by using these seven steps.
Reference: moneyrates.com (September 7, 2016) “7 financial moves to make before your first child”