6 financial strategies to help plan for parenthood
Becoming a parent is one of the most exciting times in your life! But let’s face it ... kids are expensive. The average annual cost per child is $17,000, and you can expect to spend around $310,605 (plus inflation costs) to care for a child through age 17.1
From paying for diapers to saving for college, we know there’s a lot on your mind. Less than 25% of parents think they’re good at managing their finances.2 If you’re among the majority of parents who are struggling with financial confidence, give yourself a head start by planning for your financial future now!
Here are a few tips to get you started.
Start simple and set a budget. We know you want to buy your baby the best of everything. And luckily, there are ways you can set up your budget to splurge on some things. The first step is to figure out how much you have coming in and how much you’re already spending. Consider what you can adjust to make up for any lost income due to parental leave if needed. Once you know where your money is going, you can start to make changes to free up some extra cash for baby. Learn more about how to make a budget and which kind of budget might be right for your family.
Create a long-term savings plan. The right budget empowers you to save for future expenses. So make a plan for what you’ll use those savings for. Whether it’s a down payment on a house or retirement. The earlier you start saving, the more time your money has to grow. To make sure you’re saving enough, try automating your savings by setting up a direct deposit from your paycheck to a savings account. Also, now is the time to start saving for college. It doesn’t have to be as daunting as it sounds — you can save while you spend. Many credit cards earn a certain percentage back on spending, which then goes directly into a 529 college savings account. You may not be using those points for travel for a little bit, anyway!
Plan for everything. Preparing for the future means considering different things life can throw your way. Life and disability insurance are a great way to protect your family financially. The amount of life insurance you need depends on your individual circumstances, but most experts recommend a policy that covers at least 10x your annual income. 3 Once your baby is born, you should be able to change your benefits enrollment status and add baby to your life insurance plan. While you’re at it, add baby to medical, dental, and anything else that applies.
If you become unable to work due to illness or injury, disability insurance can provide you with replacement income to support your growing family. This can really be a lifesaver if you’re a primary breadwinner with a young child.
Plan for the freebies. Take a gut check right before you hit the “buy” button. Can you buy the exact same product on a second-hand marketplace site? Is this something that pops up sometimes in your neighborhood’s Buy Nothing group? Can you ask a friend for a hand-me-down? Over time, the $20 savings here and there can help to ease the burden on your budget.
Give yourself a (tax) break! If your company offers a Flexible Spending Account (FSA) or a Health Savings Account (HSA), consider putting a bigger allowance in it prior to the birth of your child. Most FSAs and HSAs will cover deductibles and co-pays, as well as new medical expenses that can come with babies. Adding to an FSA or HSA lowers your taxable income.
Outsource your financial planning. It can be overwhelming to know that your growing family is depending on you to make smart money decisions, but it’s not something that you have to do yourself. It’s a good idea to meet with a financial professional to get a monetary checkup and help you create a plan that’s right for your family’s needs and goals.
We know there’s more to life than planning your finances. Here are a few other things you can do to prep for parenthood.
Get your health in order. Your financial wellness is important — but so is your personal health! Before you have a baby, make sure you have adequate health insurance coverage for your growing family. And catch up on your own doctor’s appointments before you need to focus on baby’s!
Create a support system. Having a strong support system is essential for new parents. This could include your parents, friends, family, or a local parenting group.
Take some time for yourself. It’s important to get some me-time before you have a baby. Go on vacation, spend time with friends, or throw yourself into something you enjoy.
Raising a child is a wonderful experience, but it’s expensive. If you take the time to prepare, you can make the transition a little bit smoother.