Anyone who has thought about starting or growing a family has likely been confronted by a startling statistic: On average, it costs about $233,000 to raise a child from birth to age 18 in the United States—and that’s before a college education is factored into it.
Reevaluating your financial plan is a great way to ensure your financial expectations are aligned. From revamping your budget to updating your life insurance coverage, here’s a checklist of things you’ll want to consider to help promote your family’s financial success.
Reevaluate your current budget
Planning for a family will directly impact your budget and monthly income. You’ll want to reassess your current budget to reflect how a new family member will affect it.
As you start to reevaluate your current budget, get an idea of how you or you and your partner will plan to navigate through the added costs of having a new child. You may realize that you will need to save more money, or that you may need to limit spending in some areas so you can begin preparing for a new baby.
If you’ve never done a budget before, you can list out your income and all the potential expenses that would go into raising a child. From there, there are several methods to help guide you in your financial choices. One popular budgeting method is the 50/30/20 method. This method suggests that 50% of your income goes toward needs, 30% goes toward wants, and 20% goes into savings.
Reassess your life insurance policy
As your family grows, so should your life insurance policy. If you’re curious about how children and life insurance policies are related, the answer is very close. A life insurance policy can provide for your family in case anything catastrophic happens to you. Depending on your policy, this money could help cover a mortgage, childcare, car payments, and all other future expenses such as your child’s college education. If you are looking to update your current policy, utilize a life insurance calculator to see exactly what next steps you need to take to apply for a new policy or update an existing one.
Figure out a system for bill payments
Parenthood is an extremely busy time, and the last thing you want is important monthly bills slipping through the cracks. A system for your bills can ensure that you never miss a due date and prevent late fees and other charges. Streamline your process as much as you can. For example, automate bill payments so whatever you owe is automatically taken out from your account the day the payment is due. You could also add payment due dates to your calendars on your phone, laptop, or tablet so you are always alerted when you need to pay off credit cards and other recurring monthly expenses.
Create an emergency fund
It’s helpful to have an emergency fund set up in case any unexpected expenses arise. An emergency fund acts as a security blanket to ensure you don’t drain your accounts when your finances take a hit or financial emergencies happen. Having an emergency fund can keep you at ease knowing that a reserve of money is there for when you need it without affecting any of your day-to-day finances. How much goes into the fund is up to you; think of your common and recurring monthly expenses and go from there.
Some ways you can start to build an emergency fund: funnel small amounts of money into a dedicated bank account to allow it to build up over time. You can also pick up a side hustle and devote the income made to the account, or use windfalls, such as tax refunds, to build the account. Start small if you have to; every bit helps.
Research financial support options
As you transition into this next phase of your family, you may need some extra financial support to prepare. As you lay out your new financial roadmap, you’ll want to have an idea of different payment options you may use for various scenarios that could arise as you grow your family. Some of these scenarios you could encounter as you enter your adult life could be having a child, moving homes, or buying a car. Whatever you may be tackling in the upcoming chapters of your life, there are vehicles to support your family’s growth.
One of these options to consider is a personal loan, which can be used to purchase a new car to fit everyone, for example. You may also want to explore the offerings of a personal line of credit or a credit card to update your home so it’s safe for your little one’s arrival. If you find you need to make bigger home improvements such as adding a room for a nursery, you may want to look into a home equity line of credit.
Dipping into your savings is another option if you have more than enough emergency savings put away to cover various other expenses that arise. No matter what, the knowledge of options will pay off in the long run.
Save for your family’s future
As you plan out your finances, you’ll want to identify ways to save up for your future self and family. Think about future finances you can contribute to, such as a 401(K) or another retirement plan, or your children's college fund.
Adding to your 401(K) while you are employed is a great way to add pre-taxed money from your paycheck to a retirement fund you can access later in life. Adding to your 401(K) for years to come will allow you to feel financially secure and gives you the ability to have financial freedom once you retire.
This might not be top of mind now, but once your child is born, it’s a good idea to start setting aside some money for a college fund, such as a 529 plan. Higher education can be expensive, and investment plans like a 529 can help offset the cost.
Implementing these tips is a great way to feel more at ease as you begin to expand your family. Don’t let thinking about finances take away from the excitement of a potential new family member, and consult a financial advisor if you feel their expert opinion and advice would help you figure out what steps to take next.