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November 13, 2020
Learning that you are expecting a child can be an exciting time but also one that comes with some anxiety. Those little bundles of joy can be really expensive.
In California, the average cost for the first year of an infant’s life is a whopping $16,945 — and is surely more in the Bay Area. And the average cost to raise a child from birth to age 17 was $245,460 in 2015 and likely has increased since then.
Financial wellness programs and solid planning can make the cost of having a baby less stressful throughout every stage. Here are some suggestions to get you started.
Let’s Have a Baby!
When you decide to start a family, take advantage of financial wellness programs and other money tips so you’re on track when you receive the good news of a pregnancy or adoption date. Good advice for this time includes:
- Look at your health insurance: See what’s covered or not covered (you may have a plan with a high deductible or one that doesn’t cover maternity services). Consider how much more you’ll be spending per month in premiums on a family plan.
- Pay down consumer debt: The interest you’re paying in credit card bills every month could be better spent on your growing family. Reducing your debt will save you money in the long run and give you a bit of breathing room if something comes up that an emergency fund won’t cover.
Baby Is on the Way
Congratulations! After months of planning (or maybe by surprise), you have a baby on the way. You’re probably nervous and excited at the same time. But don’t let that get in the way of financial wellness. Now is the time to start budgeting for:
- Baby essentials: From car seats to cribs to running strollers – expenses for a new child add up quickly. Buying furniture and decorating a baby’s room is a fun experience, but going overboard on spending is easy to do. Be sure to stay within a budget.
- Prenatal and maternity costs: Hopefully, you already know what your health insurance will cover and not cover. Plan for extra costs before they occur.
- Your flex plan: Flexible savings accounts allow you to devote pretax dollars to healthcare and childcare expenses. If your company offers an FSA, gauge how much more you expect to spend after the baby arrives and increase your contribution accordingly and to whatever level is comfortable (i.e., don’t increase so much that you’re struggling to pay for basic needs like groceries and rent).
- Childcare costs: Many new parents experience sticker shock when they see how expensive childcare is. Start looking for daycare now and plan how you’ll budget for it.
Baby Is Here
You’re a parent! Don’t worry: You’ll get used to operating on much less sleep. You’ll also get used to approaching your finances differently. Financial wellness priorities right after your baby arrives include:
- Taxes: The child deduction on your federal income taxes reduces the amount you’ll pay each year. Examine how much you’re withholding from your paycheck and if you can decrease the total, putting more money in your pocket to spend on your growing family. There are tools that can help you figure this out.
- Term life insurance: If you suddenly pass away, will your family be financially supported without your income? As a parent, it’s something you must consider. Term life insurance offers a relatively economical way to protect your family if the unthinkable happens.
- An emergency fund: Your budget may be tight, but setting money aside for an emergency fund can help you prepare for unexpected expenses, such as covering a large health insurance deductible or repairing a car with transmission problems. This fund keeps you from relying on credit cards or scrambling when you’re suddenly short on cash.
- Stay focused: You may naturally want to spend everything you can on your new child. Take a step back when you’re buying something and determine if it fits your budget or if it’s absolutely necessary. Your family and friends may want to spend like crazy on your child too. That is great but don’t be afraid to ask if they could chip in for a new stroller or a toddler bed rather than splurging on clothes that your baby will outgrow in three months.
You might have heard that raising children “goes so fast.” New parents don’t realize how lightning-quick “fast” really is. Babies become toddlers, then preschoolers, kindergarteners, tweens, high schoolers – and then they’re out of the house, leaving you wondering where 18 years and a few hundred thousand dollars went.
The lesson from this (other than savor every moment) is to not put off financial decisions for your family. Some other things to set up or start considering include:
- 529 plan: California’s college savings plan is the ScholarShare 529, which allows you to invest, federal tax-free, up to $15,000 a year toward your child’s future tuition. Although ScholarShare 529 is highly rated, state residents can invest in other states’ 529 plans if they so choose.
- Your next residence: A growing family sometimes requires a bigger home. Look into how much more rent or mortgage payment would be required to upgrade. If you’re considering buying a first home, start getting your finances in order now and putting a little money aside every month for a down payment.
- A will: As with life insurance, creating a will might not be pleasant to think about. But if something happens to you, you’ll want your family to be taken care of.
- Your retirement: Although you may naturally want to devote every last dollar to your kids, don’t neglect your future life. Contribute as much as you can to your 401(k) and consider opening an IRA account. The younger you are when you start saving for retirement, the more your investment can grow over the next 30-40 years.
A new child is an exciting experience and though you should take extra care of your finances during this time, you shouldn’t constantly worry about them. Look to 1st United to help with financial wellness education and to help you build the confidence to handle any money challenges that come your way.