In some parts of the United States, parents can expect to spend nearly half a million dollars to raise a child. For new parents, that’s a daunting number, and it can seem an impossible task for young people who aren’t used to that magnitude of financial responsibility. But it’s important to establish an approach that keeps you focused on long-term financial goals while addressing expenses, from diapers and formula to daycare costs, as they arise. Financial surprises are a regular feature of parenthood, so you and your partner must have a clear understanding of your objectives and keep them in mind as you cope with the cost of raising a child in 2018.
Having a child should force a reappraisal of even the most carefully laid financial plans, so be sure you’re both on the same page, financially speaking. It’s equally important to be in accord in the interest of domestic harmony. Disagreement over money or the inability to discuss the subject rationally is a leading cause of marital strife — and it’s not something that new parents need when they’re getting accustomed to caring for an infant.
Create a new budget based on your income, your new expenses, and adjust it as you go to make sure it’s realistic and effective. The key to a budget is not to abandon it the first time you face difficulty, though it’s necessary to maintain a degree of flexibility until you’ve got it down to a science. One of the most important things about sticking to a budget is to track spending so you can determine where to do some belt-tightening and where you have some leeway. Be patient and give it time, especially if budgeting is a new concept for you. It’ll pay off in the long run.
If saving money is also a new concept for you, now’s the time to learn the skill. Financial advisors recommend saving three to six months’ worth of expenses should the unexpected occur. Insurance will be part of your financial picture, but there are medical expenses that insurance won’t cover (as most people find to their dismay) and for which you should be prepared. And there’s the dreaded scenario in which you or your spouse suffers a loss of income and you need a healthy rainy-day fund to see you through lean times until you’re back on your financial feet. If it’s difficult for you to save on a regular basis, arrange to have a percentage of your income automatically deposited into a savings or investment account or a certificate of deposit. And take advantage of the opportunity to build a reserve fund by putting at least the company matching amount into a 401(k) fund.
One of your top priorities as new parents is to ensure that your health insurance policy matches the needs of your growing family. Be aware that enrolling in a family health insurance plan means more money coming out of your paycheck and higher deductibles, but it will protect you from overwhelming debt if someone in the family needs extensive medical care. And investigate purchasing a life insurance policy with coverage that’s equal to 10 times your annual income, an important point considering the extent of your family’s needs should anything happen to you. Make sure you understand the different kinds of policies available, as well as their relevant premiums and cash payouts, and keep in mind that you can sell a life insurance policy later on if you need to free up money for medical expenses or some other emergency. Above all, have a will drawn up so that your estate can be disposed of according to your wishes.
Family financial planning is painstaking yet essential work. The trick is to remain faithful to your long-term financial vision while preparing for and meeting new expenses as they arise. Plan carefully and communicate openly and frankly with your spouse if it becomes difficult to stick to your budget.
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