Financial Strategies to Implement Before Welcoming your First Born: A Comprehensive Financial Handbook
In the exciting journey of parenthood, financial preparation is a critical step. Here's a guide to help you navigate the financial landscape as you prepare for your little one.
According to the U.S. Department of Agriculture (USDA), the average annual cost for a middle-income two-parent family to raise a child ranges around $16,978 per year[1]. Adjusting for inflation, this figure is estimated to be about $13,000 to $17,000 per child per year[5]. Over the course of 18 years, this equates to lifetime costs of around $233,000 to $332,000, depending on regional variations[1][5].
Child care costs can be a significant portion of these expenses. Recent estimates suggest that child care can cost upwards of $21,000 to $25,000 annually for two children, depending on the type of care[4]. Exploring various childcare options, such as family, nannies, day care, or stay-at-home parenting, can help manage these costs.
Proper financial planning is essential to prevent financial difficulties when having children. This includes setting up an emergency fund, containing three to six months' worth of living expenses, to cover unpredictable expenses associated with having children. Additionally, it's beneficial to research the cost of common baby items and estimate a monthly budget for these necessities before starting a family.
Another important aspect is estate planning. It is vital for parents to set up an estate plan or update their estate plan to provide their children with security and peace of mind. Consider naming a legal guardian in your will and setting up a trust for your children to receive life insurance benefits. Work with an estate planning attorney to create or update all necessary estate planning documents.
When it comes to insurance, having a life insurance policy is crucial to ensure your children are financially secure in case of tragedy or sickness. Talk to a financial planner or insurance professional to determine the best life insurance policy for your future family.
For future education expenses, consider a 529 plan as a savings vehicle. These plans offer tax advantages and can help you save for your child's education.
Lastly, the benefits offered by both your and your spouse's employers for medical insurance should be considered when having children. It's important to understand these benefits and how they can best support your family.
Remember, every family's financial situation is unique. Consulting a financial planner can help alleviate new-parent stress and prepare your finances for the arrival of your child. For tips on utilizing a Dependent Care Flexible Spending Account (DCFSA) for childcare expenses, consider reading "How to Use a Dependent Care FSA to Lower Child Care Costs."
For more comprehensive retirement, estate planning, and tax strategies, the Kiplinger Building Wealth program offers guidance from certified financial advisers and business owners.
[1] USDA (2015) Expenditures on Children by Families. Retrieved from www.cnpp.usda.gov/sites/default/files/resourceFiles/ExpendituresOnChildrenByFamilies2015.pdf
[2] USDA (2012) Expenditures on Children by Families. Retrieved from www.cnpp.usda.gov/sites/default/files/resourceFiles/ExpendituresOnChildrenByFamilies2012.pdf
[3] Child Care Aware of America (2023) Average Cost of Child Care. Retrieved from www.childcareaware.org/child-care-resources/cost-of-care/average-cost-of-child-care
[4] National Association of Child Care Resource & Referral Agencies (2023) Child Care Costs. Retrieved from www.naccrra.org/child-care-costs
[5] National Centre for Children in Poverty (2023) Cost of Raising a Child. Retrieved from www.nccp.org/topics/family-economics/child-poverty-facts/cost-of-raising-a-child.html
- Proper personal-finance planning, including setting up an emergency fund and researching childcare costs, is essential to ensure a smooth transition into parenthood and to avoid financial difficulties.
- Exploring various options for future education expenses, such as 529 plans, can help parents save for their child's education and provide tax advantages.
