How to prepare financially for a child
Get ready to save more to meet the expenses of having a child.
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The decision to have a child can be a joyous one; however, once you’re done celebrating you also have some important financial moves to make to prepare for a baby entering your life.
Here’s a closer look at how to prepare financially for a child.
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Ramp up your savings
Having and raising a child is an expensive proposition. The cost of raising a child is estimated at $233,610 until the age of 18, according to the U.S. Department of Agriculture. Housing, food (including pricey baby formula), transportation, clothing, health care, childcare, education are all included in the statistic. And that’s before you start including the cost of paying for a child’s college education.
Parents have a lot of saving to do. So if you’ve decided to bring your own bundle of joy into the world, it’s time to reassess your budget and make room for baby and child expenses.
“It is inevitable that couples will have increased monthly expenses once they have a child. It is important to make sure these expenses fit into your budget,” says Tiffany Johnson, a certified financial planner at Piece of Wealth Planning in Atlanta, Georgia. “In addition, a couple will want to review their emergency fund savings to make sure they have an adequate amount to cover both them and a baby.”
Prepare for additional healthcare expenses
A mother will visit the doctor several times before and after the child’s birth. Well-baby checkups are a needed expense once the baby is born. So plan for these additional medical expenses by checking what your insurance covers.
“There are expected pre-delivery and post-delivery expenses that you should expect to incur. Make sure you review your medical insurance to see what your insurance covers,” Johnson says.
And don’t forget to add your baby to your health insurance plan.
“Many health insurance coverages require that your baby be added to the policy within 30 days of birth,” Johnson says. “Make sure you check with your insurance provider so that both you and the baby have adequate coverage.”
If you’re unsure of your provider’s policy, call the company’s 800 number and ask about coverage for babies. Do you have to add your baby to your policy within 30 days of birth or is there a longer amount of time? Add your baby to your policy as promptly as possible.
Utilize low-income health care options
Are you pregnant and have a low income? You have health care options. You may be eligible for Medicaid and the Children’s Health Insurance Program (CHIP) in your state. Both provide comprehensive coverage for expectant mothers who qualify. So be sure to apply.
For additional assistance, reach out to non-profits in your area that assist expectant and new mothers. You may receive diapers, baby clothes, a stroller, and more. For example, the National Diaper Bank Network offers clean diapers to families that need them as does Help a Mother Out.
Review employee benefits
It is time to check out your employer's maternity and paternity leave policies.
“Every company has different time periods, policies, and requirements when it comes to parental leave. Make sure you review your company's policies so that you can plan for this time period with your newborn,” Johnson says. “If your company does not pay you during your parental leave or even reduces pay, you can plan ahead for additional savings.”
Talk over the career and childcare choices with your partner and/or support network. Do you make enough to afford childcare? Could relatives and friends watch the baby for free while the parent or parents go to work? In the case of a couple, would one parent be willing to step away from work until a child is of school age?
“Some individuals may choose to stay at home to take care of their child instead of paying for childcare,” Johnson says. “In addition, some parents opt to change jobs so that they have more flexibility.”
Make the choice that works best for your family.
Get a more comprehensive life insurance policy
Your family is growing and you’ll need a more extensive policy if something should happen and the breadwinner passes away. If both parents work, both may choose to get an additional life insurance policy at this time. A bigger or additional policy may raise your life insurance costs but it will help to guarantee your family can manage financially if a parent dies.
“This will financially prepare the child if one or both parents unexpectedly passes away too soon,” says Alajahwon Ridgeway, owner of A.B. Ridgeway Wealth Management
in Lafayette, Louisiana.
Start saving for a child’s college expenses
Open a 529 plan for college savings after your child is born. With these savings plans you’ll have a head start on your child’s college education expenses.
“We recommend making systematic contributions into the account as soon as the child is born and receives their Social Security number,” Ridgeway says.
But don’t get so gungho on college savings that you neglect your retirement plan. Your retirement savings should always come first.
“They need to put their own financial well-being ahead of college savings. This means putting enough into their retirement savings first,” says Andy Tilp, founder of Trillium Valley Financial Planning in Sherwood, Oregon. “A common saying is there are alternatives to pay for college, but not retirement.”
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