If you just had a baby, you undoubtedly have more immediate concerns than the financial stability of your small family, such as obtaining a good four hours of sleep. But don't worry; one day you will sleep peacefully, at least until you start to consider the financial aspects of your new baby. Growing a family is expensive for people with average incomes. In the early 21st century, the U.S. government estimates that raising a child can cost well over $200,000—and that's only up until your little one turns 18 [source: Forbes]. If you wish to pursue higher education, you need budget an additional $250,000, at the very least, for college fees.
Though it could sound frightening, planning for your new family's financial future doesn't have to be a constant concern. To begin with, all it really takes to go on the right track is a few baby steps and a few simple adjustments to your pre-baby financial behavior. You only need to lay some decent, solid foundations now in order to provide for your family's financial needs for years to come. Here are five suggestions to put you on the road to financial security. Naturally, the first step is to have a firm grasp on your updated financial demands.
1. Be Aware of Your New Expenses
You are aware of the spending plan you two have created for your future together? the one who has a nice bit of extra money to spend on luxuries like movies and fancy meals out? You'll essentially be throwing that away. The good news is that you'll likely be too exhausted for that things soon. And there's good news if your track record with budgeting up to this point hasn't been stellar. You now possess the motivation. It isn't complicated science. Sit down and, well, plan as the first step in your new family's financial preparation. Knowing how much you can expect to spend on your child over the following few years can help you properly incorporate that cost into your entire financial condition.
So set aside some time during what is hopefully your baby's good, long nap and figure out what your new expenses are. The most common ones include:
- Diapers, wipes and ointment
- Bottles and formula (if you go that route)
- Breast pump (if you go that route)
- Clothing (and new clothing when your baby outgrows it)
- Regular doctor visits
- Gear such as crib, car seat, high chair, stroller and safety locks
- Day care, if both parents go back to work
There will also be others, which you will discover as you proceed. For the time being, merely figure out the additional costs you know you will incur and update your budget to reflect them. You might discover that you need to cut back on entertainment spending (again, probably not a significant problem right now), and you might decide against getting a bigger flat-screen television for the living room. You'll be happy with the smaller TV if you take a few minutes to observe your infant sleeping soundly.
2. Prepare for your Child's Education
One of the top worries for newlyweds is one that is unquestionably long-term: college. Since the expense of higher education is only going up, it's a good idea to start planning early. Even parents who start saving for their child's education infancy may find themselves looking for loans, grants, and scholarships to aid out. There are various ways to accumulate a sizeable portion of the cost without experiencing too much hardship, including investments, bonds, and savings plans expressly for tuition. Many experts advise the latter choice for new parents because it is typically tax-free and simple to set up. The flexibility of various college savings plans vary, so be sure to learn what you can and cannot buy with the funds and what happens if you need to withdraw the money early for another obligation. Then, integrate this expense into your total budget by setting up an automatic monthly withdrawal of whatever you can manage to pay into the account for the next 17 years or so. This is likely one of the most wise long-term investments you can make, although retirement may need to take precedence over this one. Money experts advise avoiding saving for tuition at the price of retirement savings, as it can be tempting to put money down for your child instead of yourself. Loans for retirement are difficult to find. Generally speaking, wait to start saving for college until you're allocating the safe minimum — 10% of your income — to your post-employment security.
3. Build an Emergency Fund
You can plan for certain costs, such as the cost of diapers, food, retirement, and the replacement of your child's car seat. These are simple to prepare for, if not to finance. Then there are the costs that appear out of nowhere, hit you square in the face, and mock your well set plans. Ideally, you already have a habit of saving money for a rainy day. Now concentrate on making the cushion deeper if you have one. Your emergency fund should increase in line with your rising expenses. Experts advise setting away six to nine months' worth of living expenses in case of job loss, which is made even more difficult if one partner is currently caring for children at home. This acts as a backup plan in case of additional unforeseen costs like large medical bills or an urgent need for a new automobile, water heater, or roof repair.
This safety net is more critical than ever in the current economic climate. If you haven't yet started saving, now is the moment, and you should give this account priority. Before college costs are due, you have almost 20 years, and you may have 30 or 40 years to save for retirement. Tomorrow, significant unforeseen expenses could arise. Determine how much you can afford to put into an emergency fund after paying for all necessary expenses by taking a look at your budget. Set up an automatic withdrawal so you won't have to think about your fund again until you need it.
4. Update Wills and Life Insurance
Even though they are not the most enjoyable aspects of long-term financial preparation, wills and life insurance plans are essential to the overall stability of your new family. When you find yourself in a long-term, committed relationship, you may have already addressed the "if I go early" aspects of planning for the future. These discussions are strongly advised because joint funds can have serious financial repercussions if one spouse passes away suddenly. If so, your new family only needs two updates to these plans: more life insurance and a will that takes your child into account.
If you haven't planned at all, this should now be at the top of your list of things to accomplish. Without a will, someone else — possibly the government — will be making these decisions for your child, in addition to naming the beneficiaries of your inheritance. Furthermore, without life insurance to cover the financial losses brought on by your premature death, your family might find itself unable to make mortgage payments or even start to pay for higher education. To purchase life insurance and create a will, you can do so online, or you can schedule a meeting with a lawyer or financial advisor. The second option will allow you to receive specialized guidance on precisely what you need to include in your will and how much life insurance you require, but it will cost you extra. The more affordable (but less precise) option is to look for guidance on reputable online resources. You may make decisions about what to do to prevent a series of financial hardships from being brought on by one terrible loss by using the free advice, rules, and calculators that are available.
5. Low Key Lifestyle
Securing the financial future can seem like a big chore when you suddenly have to take care of this entirely defenseless creature. Who, under any circumstances, possesses the resources or in-depth expertise necessary for that? Who has the time now, given the situation? You need to change some diapers. Remember this advice: Keep it straightforward. The truth is that few people can list every single thing they need to save for, let alone remember to do so. When you're just getting started and have a lot on your mind, the objective is to do the essential tasks, pay for them, and create a fair strategy for your future requirements.
Use an online service that guides you through each step to complete your will and all the many types of insurance, savings programs, and retirement options if you don't have the time or extra money to meet with a financial counselor. There is no perfect configuration right now, so you don't have to worry about doing it right away. Your family's demands and situation will evolve as time goes on, necessitating constant revision of your portfolio of budgets, safety nets, and guidelines. Now, the most critical thing is this:
- Figure out your new budgetary needs.
- Set money aside for an emergency fund, a retirement fund and a college fund.
- Draft a will.
- Buy life insurance for both parents.
Your focus can now be directed toward finding novel and imaginative ways to put your little sweetie pie to sleep once your fundamental financial demands have been met. That block of four hours is calling. Who gets your mother's dinnerware is something you can decide later.