Deciding to start a family is an important decision, as it significantly changes many things in your life, especially your finances. If you have a plethora of questions and need financial advice and tips for expecting and new parents, you’re not alone.
But the big question of all is, ‘How much money should I have saved before having a baby?’
Albeit the government has projected that a middle-income family will spend an average of $233,610 raising a child from birth to age 17, don’t let this figure give you a panic attack. Yes, it will take some financial planning. But you’ve got time before and after your baby arrives to ease into a financial position as you prepare for the cost of having a baby.
Continue reading for financial tips for expecting and new parents to set goals for your child’s milestones.
Financial Tips For New Parents
Being able to focus on the big picture is not easy when you’re sleep deprived and juggling feeding schedules.
However, thinking about and meeting your financial goals now, means fewer things you’ll have to worry about when your baby is of school age.
Given these points, here are 6 tips for new parents:
1. Prioritize Retirement Savings
If you have to choose between saving for retirement and saving for college, choose retirement. With the availability of grants, loans, and scholarships, your child will likely have more than one way to pay for college. But you will not be able to make up lost retirement savings.
2. Take Advantage Of Tax Breaks
When both parents are working, quality childcare is a must, but it can be very expensive.
For this reason, you should make sure that you’re taking advantage of appropriate tax breaks, such as the Dependent Care Credit. If you meet certain criteria1, and depending on your income, this tax break can cover up to 35% of eligible expenses.
Another option is a flexible spending account (FSA). This employed-owned program allows you to set aside up to $5,000 per year tax-free for qualified childcare expenses. But keep in mind that this program is for couples filing jointly with one or more dependents. Your Human Resources department can advise you when and how to enroll, as well as help you get started.
3. Update Your Estate Planning Documents
If something happens and you’re not there, a will allows you to designate who you would like to serve as guardian for your child.
You should also speak with your attorney or estate planner to ensure that other parts of your estate are in order. For example, update beneficiary designations, and powers of attorney for health care and financial decisions. Depending on your goals and situation, an attorney can also help you determine if setting up a trust makes sense.
4. Start Saving For College Now
A child born today and going to college in four years, the estimated cost for in-state tuition is about $242,0002. So, the sooner you begin saving, the better off you will be.
For example, if you begin saving $500 per month for college at birth, your savings fund would total about $213,600 by the time your child reaches age 17. And this is assuming a 5.0% rate of return. If you postpone saving until your child is 10 years old, your savings fund will cover about $78,400 of the child’s costs.
5. Level Up Your Emergency Fund
Your ‘rainy day’ planning also changes when having a child. In the case of a large unexpected expense, job loss, or illness, you will want to ensure that you can keep your household going smoothly. A good rule of thumb is to keep at least three to six months’ worth of essential living expenses readily available for emergencies.
6. Don’t Forget About Insurance
With the cost of medical care rising every year, ample health insurance is crucial. However, you’ll want to consider life and disability insurance also.
If the event that you are no longer there, financial resources like life insurance can help protect your growing family. At the same time, it also provides a peace of mind for your loved ones while you’re alive. The payout from a policy could potentially cover things you would like your survivors to have. For instance, a future wedding for your child, paid-off mortgage, or school tuition.
On the other hand, disability can be a huge help if one or both parents become unable to work due to an injury or serious illness. If you’re working, you probably have employer-provided disability. But you should make sure it will be sufficient to cover essential expenses like childcare, household expenses, debt, and mortgage for a reasonable length of time.
Financial Tips For Expecting and New Parents
Still feeling unsure where to begin? Some pre-baby musts, like health insurance or maternity leave plans, should probably come before long-term priorities like opening a college fund. Once that’s handled, tackle the next step. The financial planning advisors at The Ray Group are expert tax consultants, financial and estate planners. Give us a call today at (951) 296-0785 to schedule your consultation, or you can schedule online.
2 Fidelity Investments. College Savings Calculator
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