How to Plan Your Finances for Parenthood
Although one of the most rewarding things in life, parenthood is also one of the most expensive too. The rising costs of living are not making this natural step more accessible, and future parents would better put their financial affairs in order before welcoming new family members.
Studies show that these costs have skyrocketed since 2000. Right now estimations linger around $233,000 until the child is 17, so not even counting college. This number alone is sufficient motivation to plan, since it is almost as much or even more than the house mortgage.
It is worrying that almost one-third of Americans don’t have a financial plan for themselves or their family. That means not only that the future of a potential new baby is uncertain, but that parents are not sure about their pension or fiscal future in the case they are laid off.
It makes sense to think about the expenses you will have to face once the family enlarges. Don’t take a laissez-faire approach to these problems or you will be in the position to max your credit cards for formula and nappies.
If you are already a parent and thinking about enlarging your family further, you might have a clue about just how expensive kids are. You need the security given by financial planning to avoid stress and even reaching an unnecessary tension with your partner. Knowing that spending is under control gives you the peace of mind to worry more about your child’s education and abilities than paying for their food and clothes.
SMART goals are not just for corporations
SMART stands for simple, measurable, achievable, realistic and time-bounded. Such a goal can be to put aside $200 per month to pay the student loans in the next 7 years so that you are debt-free until junior goes to school.
Next, it’s a good idea to plan to raise your credit score, as explained by Crediful. It is very likely that in the next years, you will need access to more money and at least to get it at a decent rate.
Last, plan for the moment you want to retire. Start with a calculator to estimate just how much money you need, considering your lifestyle and aspirations.
Possible financial goals of future parents can include:
- Becoming debt-free
- Buying (a larger) house
- Having a safety net for any misfortunate situations
- Going on family holidays
- Establishing a college fund for your child or paying for education in general
- Creating a financial cushion for your child, especially for older parents.
Draft your budget
The great thing about having smart goals is that these put a number on your expected expenses and set time horizons. Use these and work backward to achieve them.
First, think about the fixed things and then the variable costs. Put aside money for the monthly expenses like rent, mortgage and other mandatory expenses like food. Split the rest between reaching your saving goals and having fun in an equitable proportion.
Be sure to include in the budget, separately the expenses for the baby. It also makes financial sense to start saving way ahead of time, as only delivery can set you back by a couple of thousands. You have time to prepare so that you don’t start with a loan.
Also, take into consideration the lower income of the mother and potentially no income at all if she worked independently.
Life insurance is not optional
The moment you become a parent you are responsible for another life, other than your own. That means, apart from taking extra care of yourself to be able to provide the best for your family, to get a safety net in case something happens to you.
Of course, most likely this won’t be necessary, and it will only turn into additional retirement money, but better safe than sorry.
Capitalize on the employment perks
This is the moment to explore the benefits package offered by employers for both parents. Try to find if your medical insurance has a plus one option and take your child on board. However, no employer is happy when one of the best people is going on maternity leave to be as discrete as possible regarding your condition.
You don’t want your good news to reach management to early. If you think about it nine months is long enough to get a promotion or a raise. Although it wouldn’t be fair not to get it just because you are pregnant, it’s better to keep it low key at least until it’s no longer worth hiding.