Starting a family is a big decision.
It requires both parents to be fully in sync about their needs, their goals, and most of all, their finances.
According to the US Department of Agriculture, it costs families $233,610 to raise a child to the age of 17. That number does not include the annual cost of college.
The first two years are often the most expensive, as the average American couple will pay $25,360 on raising a newborn baby to the age of 2.
These are big numbers, but make no mistake: starting a family will be well worth the cost.
Still, it’s vitally important to have a strategy in place to manage expenses and protect your financial health each step of the way.
Here are five steps to consider when preparing to start a family:
1. Review your insurance coverage
This is by far the most important financial step you can take.
With great health coverage, you’ll protect yourself against any of the myriad unexpected costs that can accrue from childbirth.
In New York City, for example, the cost of a normal delivery averages about $9,000 with private insurance. For families without insurance, however, the average bill is closer to $14,000.
Beyond the delivery itself, one study shows that a vaginal birth — without complications — can cost uninsured families up to $30,000.
Having a baby will always be expensive, but the right insurance will help you cover much of the cost.
Note: Before you start a family, make sure to contact your insurer so you have total clarity about your coverage, your copays, and your out-of-pocket costs.
2. Build a new-baby budget
Your team is growing, and so is your budget.
You’ll be buying strollers, BabyBjörn carriers, and yes, a whole bunch of diapers. And while it’s easy to fixate on the initial costs, your budget should also be built to scale for the coming years.
Why? Children typically become more expensive as they get older. In fact, studies show the average infant costs about $12,680 a year, while teenagers cost about $14,000.
Plus, if you’re planning to have more than one child, you may need to consider moving to a larger apartment or home. You may also need to consider leasing or buying a larger car.
Such big-ticket items require advanced preparation and a dedicated savings plan.
All of these goals, wants, and needs are housed within your budget, so be sure to review and adjust them before you officially start a family.
3. Plan for family leave
Once the baby arrives, your priorities will immediately shift.
That’s why it’s important to arrange for family leave well in advance. To that end, make sure to contact your human resources department and find out how much time your employer allows off (and whether that time will be paid or unpaid).
You can also check if you’re eligible for maternity (or paternity) leave under the Family and Medical Leave Act (FMLA). In most cases, the FMLA grants leave to men and women who can answer yes to each of the following questions:
- Do you work for a company with 50 or more employees or for a public agency (federal, state, or local)?
- Have you been employed there for at least 12 months?
- Have you worked at least 1,250 hours during that time?
Contact your human resources department for more information. And if it turns out that you’ll be taking unpaid leave, be sure to adjust your budget to ensure you have enough saved to cover your time off.
4. Open an education savings account
We hear you: it may seem counterintuitive to think about your child’s college education — especially if they haven’t even been born yet!
But here’s the thing: college costs a lot of money. In some cases, it can cost hundreds of thousands of dollars.
Unfortunately, too many American families neglect to save for college until it’s too late. They’re then forced to take out major loans that often cost decades to pay down, which is why over 44 million graduates currently owe $1.7 trillion in loan debt.
The best thing new parents (and generous grandparents) can do is open a college savings account, otherwise known as a 529 Savings Plan. The great virtue of a 529 plan is that it provides a tax-advantaged way to save for education.
Just like a traditional 401(k) or IRA account, the money will grow tax-free.
But here’s the best part: so long as you use the money for qualified educational expenses (i.e. for tuition, academic books, or room and board), you can withdraw the money without paying any taxes.
529 plans are a great way to prepare for college while pursuing your other financial goals (like retirement).
Contact your bank or broker to learn more!
Starting a family is one of the most exciting parts of life.
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