GOLDEN VALLEY, Minn. - A new addition to the family means big changes for parents. It's not all about baby clothes and diapers. A good look at your finances is one of the first steps you should take when planning for a baby.
Morgan Stanley financial advisor Dan Ament breaks it down for us:
- Bundle of Joy – Your new bundle of joy is sure to bring priceless memories and happiness to your family. That said, having a baby is not free. According to recent figures from the U.S. Department of Agriculture (USDA) in Washington, DC, a baby born now will cost a middle-class family $170,460 to raise through age 17. The figure climbs to $249,180 -- about $15,000 a year -- if a family's annual income is above $65,800. And that doesn't even include college expenses, now averaging $26,070 a year at private schools and $11,976 at public ones. Covering the costs will inevitably be a stretch, since a recent Consumer Finance Survey by the Federal Reserve indicates that nearly two-thirds of households with young children are saving no money at all.
- Acclimate to Your Anticipated New Financial Commitments - Try to pay down high interest debt. If you pay off your high-interest debt before baby arrives, the money you were spending on interest and monthly payments is cash in your pocket. Prepare or update your budget. Your new world may revolve entirely around baby, but you’ll still have to cover rent, buy food and pay your other bills. And if either you or your spouse plan to stay home with the baby indefinitely, make sure you can afford to live on one income and adjust your spending habits now. Practice living on one paycheck to give the arrangement a test-run, and use the other paycheck to pay down debt and beef up your savings.
- Benefits Review – Review the details of your health insurance coverage specific to your expected expanding family. If your current plan doesn’t meet your needs, consider the timing of any policy changes ahead of time during your open enrollment window. The birth of your child will be considered a ‘change in family status’ allowing you to review your various employee benefits during an allowed window of time. Brace for higher premiums …. a recent study of employer-sponsored health plans by the Kaiser Family Foundation found that the average monthly premium for a family plan cost nearly three times the premium of a single policy. You probably didn’t need life insurance as a single, or even as a couple. But now that you’re going to have a family that relies on you for financial support, it’s a must. A general guide is to consider coverage of approximately 8-12 times your income. Needs will vary. Also understand in advance the details your family leave policy is with your employer.
- Your Future – Don’t overlook the importance of planning for yours and your baby’s future. Regularly review your retirement goals and the disciplined savings required to get there. Also consider 529 college savings plans. If you think raising your child is going to be expensive, consider the cost of shipping Junior off to college. The average price tag of private college tuition is expected to run well over $250,000 by the time today’s newborn is ready to head to campus. But with a little planning and saving now, you can ease the future sting.