Parents is told by Jamilah McCluney, financial advisor. McCluney says, “As a financial adviser, I believe it should take as much preplanning financially, and if not more to ensure that you are financially prepared”
According to the USDA, it costs $13,741 per year to raise a child from birth until age 17. This does not include college tuition. If inflation costs are included, the number can rise to more than $16,000 annually. It is worth planning ahead and starting saving as soon as possible.
You might be surprised at how much daycare costs can rise annually.
Child care costs continue to rise so start saving now for your daycare expenses. According to the Center for American Progress, the annual child care costs for infants are approximately $16,000. This is about $1,300 per monthly. Child care costs can be more expensive in urban areas, where they can reach around $20,000 per year.
Michelle Young, a Minnesota-based financial adviser for Ameriprise says that a monthly savings program can be helpful. Young suggests that you practice saving for daycare expenses monthly as a family once you discover you are pregnant. Then you will be able to adjust to the additional expense before it occurs. Young says that the money saved in this account can also be used to pay for unexpected baby expenses.
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Learn about the benefits parents can receive from your company.
You should be familiar with the benefits offered by your employer to parents. This will allow you to take full advantage of your benefits when you are preparing for your baby’s arrival. Young suggests that you should inquire about parental leave policies and whether or not you will be required to use short-term disability. Young also recommends that you learn about any dependent care savings accounts that could reduce your taxable income.
Review the rates and policies for family health insurance plans if your company offers them. You will be adding your baby to your existing policy. Young says that if there are multiple health plans, it is important to determine which plan is best for your family’s needs.
Use your Health Savings Account (HSA), if you have one.
If you have a high deductible health plan (HDHP), with an HSA, it is advisable to make use of them. Parents is told by Mike Hakimi (certified financial planner, founder of Black Dog Financial Planning), that HSAs are an amazing savings tool. For more savings, check to see if your employer contributes or matches your HSA. Pre-tax dollars can be taken from your paycheck and put in your HSA. They will grow tax-free, and can be used to invest or for medical expenses.
This can save you a lot of tax, especially when you consider the high cost associated with having children. Hakimi says that unlike other medical savings accounts like an FSA, an HSA does not have a ‘use it and lose it’ policy. Your HSA money will rollover into the next year and you can take it with your if you ever leave your company.
Hakimi suggests that you start a sinking account if an HSA or another tax-advantaged account does not suit your needs. Sinking funds are separate savings accounts that can be held at your primary bank, or online in high-yield savings accounts. Hakimi recommends that you open one as soon you learn you are having a baby, or as soon as possible after you begin trying.
A bi-weekly $250 deposit for the next 8 months would add up to about $5,000. He explains that this could pay a large portion of medical expenses.
Save money for your child’s college education.
College tuition is not a secret. Start your savings plans early. Parents is told by Jeanne Berger (private client advisor at J.P. Morgan Wealth Management), that it’s never too late to invest for college. Berger and Hakimi both recommend that you start a college fund using a 529 college savings program.
The money invested can grow tax-free and, if it is used to pay college expenses, can be given out tax-free. Hakimi explains that depending on where you live, there may be a state tax credit or deduction. As a parent, you will have many expenses to save. But make sure that you are saving for your child’s college fund as well.
McCluney advises, “Save for emergencies, save money for new homes, save for their future education (in a 529 plan or other financial vehicles), but still save,”
Plan ahead and keep in mind the larger financial impact of having children.
Plan ahead, and begin saving early to cover all expenses (expected and unexpected) that will come with having a child.
Young says that most people don’t consider the size of their car, how many rooms they have, or the size of their dining room tables when planning for children. Young recommends that you review the financial implications of your new addition and have a plan.
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Berger says, “As a mother of a five-year old, three-year old, and five month-old, I can assure you that your expenses will change with a newborn baby.” She recommends consulting a financial advisor to help you prepare for these changes.
Make a budget, increase your savings and make sure you have all your financial documents up-to-date. You (and your finances!) should be ready for your baby.