Bringing new life into this world is the biggest decision you can make. Once you’ve chosen to have a child, the journey to parenthood can be exciting, but there’s no denying it’s also daunting. There are many considerations to make as you prepare for your child’s arrival. Amongst these is how you will be financially implicated.
Any parent will tell you that raising a child is expensive. In fact, the average cost of raising a child till the age of 18 in the US has been estimated up to $310,605. This estimate includes the basic essentials—such as housing, food, healthcare, and clothing—but the costs of raising a child will vary depending on your family’s lifestyle, demographics, and location. Many families make it work through financial hardships and manage to provide sufficient care despite limited resources. However, you should take every precaution to avoid financial strain and feel prepared for the new addition to your family.
Here are 5 financial implications to prepare for:
1. Update Your Healthcare
Healthcare is one of the first things to consider when planning for your little one. They will depend on you for this even prior to their birth, and throughout your or your partner’s pregnancy. After essential prenatal care, such as doctor’s checkups, screenings, and vitamins, you will need to consider the costs of a hospital birth. Even with health insurance, there will often be an out-pocket-cost for this, and the deductible can amount to thousands.
You will need to review your healthcare plan to find out which options you have. The type of birth, care administered, medications (such as an epidural), and the room you have chosen, all factor into the total cost. You will also need to check if the hospital you have chosen falls under the network of providers covered by your healthcare plan.
Once your child is born, this will qualify as a life event that allows you to update your healthcare plan. It is important that your child is covered and receives necessary pediatric care after entering the world.
You should also look into getting or updating your disability insurance. In the event that you or your partner become ill, this will ensure that your child is provided for should one parent suddenly lose the ability to work. Make sure that this covers essential living expenses like mortgage, debt, childcare, and household expenses for a reasonable amount of time, as you or your partner could have a lengthy recovery period.
2. Plan for the Unforeseen & the Unexpected
While no one likes to think of the worst-case scenario, it is prudent to plan for financial emergencies, such as unexpected job loss. It’s generally agreed upon that your emergency savings should cover at least three months of living expenses.
Bringing new life into the world is a huge responsibility and requires that you are prepared for all scenarios. Life Insurance is a fundamental consideration. In the event of your or your partner’s passing, your coverage must be sufficient to support your child throughout their life.
Having a child is an event that calls for the creation or revision of your will. You must decide on who will be the beneficiary of your assets and assign guardians for your child. You can also look into creating a trust, which will distribute assets to your child as required at different intervals. Discuss this with your financial advisor to find out if this is a viable option.
While this might be an unpleasant consideration to explore, having all your affairs in order will give you peace of mind about your child’s future.
3. Start Saving for Their Education
Education is one of the most expensive costs to factor in while raising a child, and this should be considered as early as possible. While public schools are free in the US, private schools can come at an exorbitant cost. Tuition at a private school averages $12,167 a year. If you choose a public school, there will still be additional costs, like those associated with extracurricular activities.
College tuition is infamously expensive. Attending a public institution for four years costs around $102,828 on average while attending a private non-profit college for four years will amount to around $218,004.
If you’re in the position to start saving, a 529 plan is a popular option. Also known as “qualified tuition plans”, these are tax-advantaged savings plans sponsored by states, agencies, and educational institutions. Provided you only use the funds towards your child’s education, you will benefit from the growth of tax-free earnings over a lengthy period of time.
4. Consider Childcare Costs
When you first have your child, you will likely spend a lot of time at home with them, strengthening your parental bond. Many companies that know how to calculate profit margin to accommodate new parents have begun to offer paid parental leave. You will need to review your specific company benefits to see if this is an option, and how long you will be permitted to take off. If this benefit is not offered, you can find out if you qualify for short-term disability leave.
If you or your partner plan on becoming a full-time, stay-at-home parent and leaving a job permanently, you must factor this loss of income into your financial planning. Alternatively, you will have to consider different childcare options, all of which come at varying costs. These include nannies, live-in au pairs, and daycares. If you’re able to rely on familial support, such as the care of grandparents, this could lead to huge savings.
5. Factor in Immediate Costs
There are many essentials you will need when welcoming your newborn. These include a crib, car seat, breast pump, and bassinet. You should purchase these ahead of your baby’s arrival. Infant formula, diapers, and wipes will become regular items on your shopping list. You will also have to regularly update your baby’s closet as they grow.
There are many items on the market that might entice you, but you could find that you never reach for these. despite thinking they’re necessary. Plan your list of essentials well before your baby arrives to avoid panic buying. A good way to get ahead on your baby gear is by creating a baby shower registry with items you will strictly need. Then, you know that even if your budget is tight, the basics are covered..
These are just some of the financial considerations that you’ll need to think about when having a baby. We know there are so many others, and that they depend on different scenarios, but we hope these help as a great starting point