Raising a family these days is a costly proposition. It is estimated that the cost of raising a single child for a middle-income family is close to a quarter of a million dollars, and that figure’s not expected to go down anytime soon. Along the way – from birth through college – there are plenty of unpredictable expenses and the price tag of many of anticipated expenses continues to rise. As a parent, you need to generate a lot of income during your working life to cover all those needs. But it’s also important to plan carefully and in detail so you’re not caught flat-footed when nasty surprises pop up. Good financial planning helps you prepare for all of that earning and spending so you can make the most of your hard-earned resources and give your family the kind of life they deserve.
For many young couples, creating a budget is alien territory, something their parents always advised them to do but which may not have seemed an urgent need before they started having children. Once the kids start coming, budgeting should become familiar territory and something you and your spouse need to get comfortable with. Start by budgeting for essential items, such as diapers, baby formula, toys, clothes and incidentals. While you’re at it, be sure to include one-off items that are necessary and important for parents raising a baby, such as a changing table, rocking chair, or a stroller. These can be pricey items that’ll put a major crimp in your budget, so take care to allow for them. And, there’s the usual monthly living expenses and setting aside money for vacation, car repairs and some quality time with your partner.
As you work to get a handle on your overall assets, remember that you’ll need to calculate the worth of your home. If budgeting is a foreign subject to you, now’s the time to learn.
Child care is the first really significant expense you’ll face in raising a child. If, like most people, you and your spouse have to work, then child care will be a reality for you and sooner than you realize. Once maternity leave is over, it’s time to place your little one in a child care facility so you can return to work. If you question the need to start saving for child care, consider that the average yearly cost of child care for an infant has exceeded $14,000; for a young child, it’s nearly $13,000 a year. Many young couples try desperately to find some less expensive alternative, only to find those are in short supply: the annual cost of hiring a live-in nanny is $30,000. The idea here is to plan ahead and save for this burdensome expense, so you’re not left wondering where the money will come from.
As your family grows, so does your need to provide for their health care needs. A family health insurance plan means more coming out of your paycheck and higher deductibles, but it’ll cover most unanticipated health issues. Be aware that carriers often require you to add a new child to your family within 30 days or risk losing certain benefits. When it comes to budgeting, take into account that the average annual premium for an employer-sponsored plan is more than $17,000, with employees covering almost a third, or about $5,000 of that annual cost. When it comes to your car insurance, you may want maximum coverage to protect your family in all situations, but costs can add up quickly. Look for ways to save; many insurers offer discounts if you request a long-time customer discount, bundle policies, add a wheel lock, or drive less than 12,000 miles a year.
As a parent, it’s essential to have a will that makes clear exactly how your estate is to be disposed of should you pass away. A clearly stated will should help prevent arguments between surviving dependents and court cases after your death.
The best way to provide for your family’s security is to plan well and thoroughly for the future. Identify key expenses along the way and use all of the savings and investment tools at your disposal to help meet your financial objectives.
After losing her husband Greg, Sara Bailey created TheWidow.net to support her fellow widows and widowers – a place where shares her unexpected and ongoing journey of losing her husband and learning to be the best parent (and person) she can be while nurturing her grief. She is also the author of the upcoming book Hope and Help After Loss A Guide For Newly Widowed Parents.