What to (financially) expect when you’re expecting
By Of all of life’s great milestones, maybe the most beautiful is having a child. My wife and I are expecting our newest next month, which will make it three girls under 4 years old.
As wonderful as these gifts are, they come with a price. According to recent studies, the average cost of raising a child from birth to 17 for a middle-class married couple has surpassed $300,000. That’s before factoring in a dime of college expenses.
This sounds like a crazy number, but when you start to consider healthcare costs, food, transportation, and clothes that they grow out of seemingly every week — you start to get a sense of the real monetary sacrifice it takes to provide for a little one.
When I talk to clients who are expecting, especially when it’s their first child, I try to make those numbers feel real to them so that they have a good idea of how their financial situations will change. It begins from day one — I remember being amazed by the medical bills and hospital bills we incurred up front. If we hadn’t saved for those, we would have had to dip into our emergency fund right away. And there are a host of other factors to consider within just the first couple of months.
You’ll want to think about childcare. Are you going to send the kid to daycare, will you stay at home, do you want to use a nanny? It’s important to look at your budget and both spouses’ incomes before shopping around and finding the situation that fits your family lifestyle but doesn’t break the bank.
Your child will need to be added to health insurance plans. Mom and dad may have different plans, so it’s important to figure out which is most advantageous, or even if you should use both. You should consider providers, coverage, deductibles, co-insurance, all of the factors to make sure you make the best choice.
Life insurance is also incredibly important. You now have someone else who depends on you, and we know raising a child isn’t cheap, so upping life insurance could be critical to make sure your family is taken care of in the case that one of the income providers passes away.
How are you going to amend your budget, figuring in diapers, wipes, food — those monthly expenses that some families aren’t used to? You’ll want to carefully walk through your budget to see what you need to cut back on or where you can save a little more toward future expenses.
Finally, 529s can be a really helpful way to start saving for college in 18 years. The earlier you start, the more compound interest can start working for you. A 529 can also be used for private schools if you decide to go that route. Some parents I talk to worry about overfunding their 529, but you can now transfer up to $35,000 to a Roth if you don’t end up using those funds for educational expenses, subject to certain limitations and annual Roth IRA contribution limits.
There are lots of financial considerations to make, and I know it can sound a bit overwhelming when you’re also thinking about the life-changing process of bringing a new life into the world. This might be the single best time to start working with a financial advisor. Let us help take some of that off of your plate. Contact us today for a free consultation, or take a look at our one-time-payment New Arrival plan that can help you walk through this on your own.
Article by Jacob Buckley, CFDA, MBA, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.