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Starting a family is not a life event that should be taken lightly, especially financially. The price tag for a baby born in 2015 is about $233,000+ from birth to age 17. That is NOT including college! So the questions becomes, how can you manage those costs and still prepare for your own future. Here are a few ideas to help manage your money as you raise your family.
Savings are key in order to navigate having children. There is one thing that is certain when raising a family, there will always be the unexpected. Keeping 3 to 6 months’ worth of expenses on hand is a great idea. We suggest taking a ‘pay yourself first’ approach and treat your savings accumulation as just another bill. This way, it is never neglected, and you can establish a healthy savings to pay for those pesky items/expenses that just crop up out of the thin blue air.
Not only is raising your child an expensive endeavor, but so is their future. If your child goes to college this brings up a entirely new expense. While it is easy to say kids can attend school just as we did, working and paying for school with loans, many of us are far in debt because of our student loans so we know firsthand this isn’t a fantastic solution. Any savings that can be contributed to the costs of higher education is a plus for both your own and your child’s financial future. You may establish a 529 Plan or a UGMA (i.e. savings account) to offset some of these costs.
The rule of thumb of 50/15/5 states that no more than 50% of your take-home pay should be used on essential expense (house, food, health and debt). While we want to have a home that will accommodate a growing family beware of over-spending. A home is the largest child-rearing expense in a typical family. If you over-spend on your home it is unlikely that you will be able to help with the cost of your child’s education, vacations and most importantly your own retirement.
The importance of Insurance can never be overstated. Afterall, you are now responsible for someone else’s well-being. If you are unable to financially support them because of your incapacitation or death, insurance is a necessary expense. Insurance options that should be explored with a young family, aside from the obvious medical, car and home insurance, is term life insurance. Often a cheaper option, it will provide your family with a benefit if you were to pass away. Additionally, disability insurance which can cover your expenses should you be unable to work.
There are many more options that you could explore in order to provide for your growing family but it is important to understand how the expenses accumulate and how you are going to prepare for them ahead of having your first child.