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Becoming a new parent is a big responsibility and one of the most important things to focus on is financial planning for your child’s future. It’s never too soon to start; the years move quicker than you can imagine. So what do you need to know? Start by understanding how much you are worth now.
Calculating Your Worth
To calculate your worth, start by adding up your assets and liabilities, including any property you own. You might be a little confused on how to calculate your home’s value. You’ll need to start with your home’s condition: is it in good shape? Is it up to code? Have you renovated anything? Learn more about the process at Redfin.com.
Once you have that figure, continue calculating net worth by deducting your liabilities from your assets. The Balance advises you do this annually. Don’t worry about the final number. This is a starting point that allows you to create a financial goal for your family’s future.
Planning For Your Child
As of 2015, most families spent over $12,000 per year in the first two years of their child’s life, according to the USDA report Expenditures on Children by Families. You may not have realized it, but your budget is about to expand quickly.
The Next Few Months
First, you have to plan for either additional leave once the baby is born or childcare if you are going back to work as soon as your standard maternity leave runs out. Day care for infants is generally costly. You must also take stock of what your current health insurance will cover and what you must pay out of pocket for deductibles such as doctor visits, delivery and other expenses.
This is, of course, in addition to your new regular spending: baby gear, baby food, formula if necessary, pediatrician visits, etc. Don’t forget that you’ll also need to add your child to your health insurance once he or she arrives. Learn more tips on what you must plan for through your baby’s first month in this article from NerdWallet.
You may assume that your child will be attending a private college. If so, you should consider setting up a 529 plan for your child, According to the SEC, this is “a tax-advantaged savings plan designed to encourage saving for future education costs.” There are two types: prepaid tuition plans and education savings plans. The first allows you to buy college credits at participating universities, and the latter lets you open an investment account to save for tuition expenses. Here are more steps you can take to save for your child’s college program from The Chicago Tribune.
While that may or may not happen, there are other things you may need funding for along the way, such as:
Private education in lower grades.
Expenses if your child is profoundly gifted in academia, arts, or sports.
Expenses from unexpected medical problems or injuries.
Be sure to build an emergency fund for your family to cover these.
Planning For Yourself
Now is also a good time to start planning for your own retirement. Almost 1/3 of American families have zero dollars saved for their future, according to Time. You don’t want to be a burden on your child in your golden years.
Money Crashers recommends that if you are still decades away from retirement, you should save for that before saving for your child’s college fund. Read the whole article for tips on saving for retirement.
Planning For Disaster
Finally, you need to prepare for the worst as well. We recommend you take time now to consider the following:
Life Insurance: Pick the best plan for your family.
Create A Will: If you don’t have one yet, read the Consumer Report’s guide to creating one.
Planning For Guardianship: Should you pass away while your children are young, they will go to the next nearest family member unless you designate a guardian in your will.
Having a baby is the perfect time to get started with financial planning for your family. Don’t delay - your child will be grown before you know it!
About the author:
My name is Sara Bailey, and I’m a widow.
Like many people who have lost the love of their life, I never in a million years thought I’d be here. On my 40th birthday — which I spent with my husband and our two kids bowling, devouring cupcakes, and laughing more than I ever thought was possible — I never dreamed that by my 41st, I’d be a grieving single mom raising a son and daughter on her own. But here I am, and with each passing day, I get a little stronger, and life gets a little easier.