Here Come the Kids ... And Their Expenses
Monday, 13 August 2018
It's a fact: Having a family and raising children is expensive.
The cost for a middle-income family to raise a child born in 2015 through the age of 17 is $233,610, according to a 2017 report from the U.S. Department of Agriculture. And that's before you send them to college!
Of course, expenses will vary from year to year, and there's no real guide on what to expect financially when you have children. There are, however, steps you can take to avoid being blindsided by children's expenses, even before you bring home that first baby.
Pre-birth: Start saving now
Even before the baby comes, you can take some proactive financial steps:
- Start a savings account for each child, no matter how little you can set aside each month. Saving even $25 per month adds up to $300 in a year.
- Set up a savings account for emergencies if you don't already have one. The goal is to save enough to cover your living expenses for six months. Keep adding to it for as long as you can; you might need it one day for your teenager's braces.
- Review your life insurance. If you don't have life insurance through your employer, purchase a policy now so that your family has some money to fall back on in case of your death or disability.
Post-baby: Focus on practical expenses
The game of life is unpredictable. The day will come when you have to choose which expenses related to your kids matter most. Be prepared by prioritizing expenses before an emergency:
- Health and safety come first. For instance, a good quality car seat is more important than cute baby clothes. A crib that meets all current safety requirements is essential. And health insurance is critical. It can be expensive but the costs of an uninsured trip to the hospital can be catastrophic. If your employer offers a flexible spending account, use it! If your employer doesn't cover you, research independent options.
- Education matters. Talk with a trusted financial advisor about setting up an educational savings account with a state-sponsored 529 plan. It may have tax benefits and will help pay for your child's college or vocational school expenses. Ask friends and relatives to consider college fund donations in lieu of gifts. Even small contributions can really add up over the next 18 years.
- Don't forget retirement. Your personal "wants" may have to be put aside in favor of baby "needs," but don't ignore your retirement savings. Your children can get loans and scholarships for college, but you can't borrow money for retirement.
Thinking ahead when planning for parenthood will hep keep you on the right track for your family's successful financial future. Start implementing these financial strategies now, and you'll not only develop good habits for yourself, you'll provide a great financial planning model for your child. That's a lesson every child can benefit from!
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