Updated: Jan 28, 2022
This weeks article comes to us from Sara Bailey, a mother of two who understands the importance of planning financially. Sara breaks down how we can move forward without breaking the bank when having a baby.
Children require a great deal of planning and preparation. Your home needs to be ready for another body to live in it, and your schedule needs to provide round-the-clock care for a new life. Help needs to be acquired to take over when you’re occupied. Your bank account needs to be fuller to make room for the extra expenses of having a baby. Parenting can be improvised in some aspects, but money should not. New parents, make sure you have a financial plan in place before the baby is born.
According to analysis by the USDA, parents pay an average of $233,610 to raise a child to the age of 18. Experts at Bankrate created this GUIDE that will help parents formulate a plan to save money for a child. This guide will explain how to save for a child’s college and life experiences, as well as tips on creating a children’s saving account.
Know Your Budget
Take a look at your existing expenses. Research what it costs to raise a child in your area. Add those numbers together, and make sure to include future expenses like an emergency fund and college tuition. Most new parents have already considered day-to-day costs like diapers, wipes, food, and clothes. However, occasional costs such as insurance and copays often get forgotten when making a budget for a new baby. And let’s not forget the cost of having the baby itself! You’re looking at a minimum of $5,000 to have the baby and thousands more for the first year alone. Over their lifetime in your care, you’ll be spending over $200,000.
Know Your Income
Do you know how much it costs to raise a child? Great! Now, do you know how much money you have to cover those costs? Maybe not so great. If you’re already living paycheck to paycheck, then it’s time to put your finances in check. That $3,000 a month might have gotten you by for rent, bills, car payments, food, health insurance, and extra expenses, but now you’ll need an extra $1,000 for the baby. You’ll have to budget your expenses differently. Maybe that means eating out less (which is inevitable since you likely won’t be going out much during the first year), cutting cable, or refinancing your student loans. Or you can spend less on utility bills by lowering your energy and water usage (helping the environmentin the process). Maybe it means getting a second job or even better, asking for a raise at work.
Know Your Worth
Your financial worth (or wealth) is what we’re referring to here. This isn’t what you make each week or month, but what’s in your bank that you don’t touch. It’s all of your assets: savings, investments, stocks, property value, retirement portfolio, etc. You can calculate the total worth of your assets by talking to your financial advisor. This includes figuring out the value of your home. A profitable home might be worth selling or refinancing if there’s equity.
Know Your Other Income Streams
This step goes hand-in-hand with knowing your worth. The obvious answer is to look for a second job or a work-at-home opportunity, but let’s be real: What new parent has time for another job on top of the full-time job of parenting and their existing career? Your money can come from refinancing mortgage or loans or withdrawing from your Roth IRA (make sure you understand the penalties of withdrawing early). If you don’t have one already, maybe it’s time to start a Roth IRA for your child’s future. Remember, you’re not only looking to subsidize your living expenses today. You still have many years to go, including your child’s college fund.
Now that you’ve completed an analysis of your financial situation, it’s time to line up your ducks in a row. Make a spreadsheet of what you need, what you have, and what you can add. Start this process as early as possible because it can take a while for things to start moving. Know your plan and take action. You’ll be happy to have a financial cushion when the baby comes.
Check out this free and downloadable forgiveness and repayment calculator. This helps students see their monthly student loan payments over time, interest accrual, and subsidies they may qualify for HERE.
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