Welcoming a first child is a wonderful experience, but it requires a lot of preparation—including discussing priorities, responsibilities and plans for guardianship.
It takes more than childbirth classes to prepare for the birth of a first child. Cost is a significant factor—with recent numbers from the government estimating a total cost of $245,000 to raise a child from infancy to adulthood. But there are other things to consider, as reported by moneyrates.com in “7 financial moves to make before your first child.” Here are seven things to think about as you await your new arrival.
There’s no way to escape the fact that your kids are going to cost much of your paycheck. Plus, there’ll be unexpected costs like medical bills, music lessons and school events. With that in mind, here are some tips to start your family on firm financial ground before the bundle of joy arrives.
- Are you ready for kids? It’s the toughest job there is, and being a parent is an emotional and financial commitment. Both of you must be on board with the decision.
- Set your life and financial priorities. Both parents should commit to having a child and agreeing to work within their current means to meet their family's needs. To do that, parents need to discuss and agree on a set of financial priorities. Topics to discuss include things like public or private school, funding his or her college education, annual vacations or purchasing a vacation home, child care, and housing needs. You can also survey parents on what expenses they've had with their kids to learn more and identify any missing items.
- Make a budget. A sound household budget is critical to being financially stable in preparation for a baby. Talk about family priorities in advance of creating a budget. A couple's shared vision will shape how they plan to spend and save their money.
- Create an emergency fund. You should have an emergency savings account in the bank, and if you’re a single income household, maintain a fund large enough to pay for six months of expenses. A fully funded emergency fund helps you survive a financial storm.
- Review your insurance needs. You should look at your insurance coverage. For the immediate future, you should know how much your health insurance deductibles and co-pays will be for labor and delivery charges, as that’s what you'll have to cover out-of-pocket. You’ll then need to add your child to your policy within 30 days of his or her birth or adoption to ensure your child will be covered. For the long-term, consider whether you have enough life insurance. A good rule of thumb is 15 to 25 times your annual income. Parents should also make sure they have disability insurance, which can bridge a financial gap in the event that a parent can no longer work.
- Have a Plan B and a Plan C. You should know what to do in a worst case scenario. This helps couples create workable a Plan B and Plan C to put into action in the event of a crisis.
- Make sure you have a current will that includes naming guardians for your child. No one likes to think about this, but if you have a child and both parents die, who will raise your child? Once the child is born, your will must be updated to include a plan for guardianship. This is also the time to review beneficiary designations and make sure insurance policies are up to date.
Having a child is a life-long commitment that requires putting the child’s interests first, and that includes preparing for both the best of circumstances and the worst. These seven steps will get you started.
Reference: moneyrates.com (September 7, 2016) “7 financial moves to make before your first child”