Expecting a visit from the stork soon or has it already dropped off a new bundle of joy? If so, you know the full range of emotions that come with a growing family. Along with the love and excitement you feel with a new baby boy or girl, comes the pressure of new responsibilities and additional financial obligations.
Babies change your life in many ways, including requiring large amounts of time and money. While you may already be thinking about childcare costs and options, or about paying the medical bills that accompanied your new child, there are several other – important – financial considerations you should be thinking about even before the new baby arrives.
Evaluate Financial Priorities. It’s important to consider both short-term and long-term expenses that come with the addition of a new family member. It is a natural impulse, for instance, to want to put your child first and redirect retirement savings into college savings. But remember, you can borrow for college but you cannot borrow your way through retirement. It’s also important to balance long-term goals, like retirement and college expenses, with current financial needs, to help you allocate resources in an appropriate way.
Update Insurance Needs and Your Will. With the expansion of your family, insurance needs can change significantly. Having enough insurance is important in feeling confident about your family’s financial future. Adding your child to your health insurance policy can usually be done with a phone call. Making sure you have enough life insurance for both parents can help ensure you have the funds to raise your child if the unthinkable happens. Short-term disability insurance provides benefits if you have an accident that takes you out of work temporarily. Long-term disability insurance is critical in case a major accident has a permanent impact on your ability to work and earn. While some companies offer disability insurance, it can also be purchased independently.
Updating your will or creating a trust can provide care instructions for your child and allocate resources for their upbringing. Without a will or trust, if you and your spouse die, the state will decide who will raise your children. A will establishes your wishes for who will care for your child. A trust can direct funds specifically earmarked for raising your children and can be an effective way to cover financial expenses and provide for college expenses.
Start Planning For College Early. The sooner you start the better. While it is impossible to know exactly how much you’ll need to save – given that you don’t know what kind of college your child will choose – consider that in 2013-2014 the cost of a moderate in-state public university was $22,826 per academic year and the cost of a “moderate” private university averaged $44,750, according to a College Board survey. ¹
For new parents this means that college could cost over $100,000 for a public college and more than double that number for private school. Instead of trying to fund the entire cost of their education, determine how much you want to contribute. Having children be responsible for a part of their education is often a good lesson in work ethic, even if you can afford to pay for everything, and a critical life lesson if you can’t.
Keep Spending and Debt under Control. When you have an adorable child it’s very easy to overspend. You want them to have the best of everything. Setting a budget and sticking with that can help you keep your spending in line with your established budget. This can also help you maintain the discipline needed to continue contributions to long-term financial goals like retirement and their college education. And remember, the best gift you can give your children – your time and attention – is free.
Another important consideration is debt. When you carry debt, you are paying today for yesterday’s bills. Investing potentially allows you to pay today for tomorrow’s bills. By keeping yesterday’s bills settled and debt to a minimum, you lay the foundations for having enough to enjoy today with your children and plan for tomorrow.
Teach Children About Finances At An Early Age. Finances are a part of our daily lives. When you involve children early on they gain an appreciation for what things cost and how to choose what we want and what we can live without. As soon as your child old enough, start helping save their pennies for something they really want, and teach them that work is part of the process of earning money. These skills, if taught early, can lead to a lifetime of responsible money management.
Parenting is an amazing adventure that changes the way you see yourself and the world. Keeping an eye on finances can provide you with the confidence you need to not only enjoy your growing family but help lay the foundations for a stronger future.