Starting a family is not a life event that should be taken lightly, especially financially. The price tag for raising a child born in 2015 is about $233,000+ from birth to age 17, and that does NOT include college! So the question becomes, how can you manage these costs while still preparing for your own future? Here are a few ideas to help you manage your money as you raise your family.
Expect the Unexpected
Savings are key when it comes to navigating the financial demands of having children. One thing 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 treating your savings accumulation like any other bill. This way, it is never neglected, and you can establish a healthy savings cushion for those pesky expenses that seem to crop up out of the blue.
Savings, Savings, and More Savings
Not only is raising a child an expensive endeavor, but so is their future. If your child goes to college, this introduces an entirely new set of expenses. While it’s easy to assume kids can work and pay for school with loans, many of us are deeply in debt because of student loans, so we know firsthand that this isn’t always the best solution. Any savings that can be contributed to the costs of higher education is a plus for both your and your child's financial future. You may consider establishing a 529 Plan or a UGMA (Uniform Gifts to Minors Act) account to offset some of these costs.
House Rich, Cash Poor
The rule of thumb—50/15/5—states that no more than 50% of your take-home pay should be used on essential expenses (housing, food, healthcare, and debt). While we all want a home that accommodates a growing family, be cautious of overspending. A home is the largest child-rearing expense in a typical family. If you overspend on your home, it’s unlikely that you will be able to help with the cost of your child’s education, vacations, and, most importantly, your own retirement.
Protect What You Have Earned
The importance of insurance can never be overstated. After all, you are now responsible for someone else’s well-being. If you are unable to financially support your family due to incapacitation or death, insurance is a necessary expense. Insurance options that should be explored for a young family, aside from the obvious medical, car, and home insurance, include term life insurance. Often a cheaper option, it provides your family with a benefit if you were to pass away. Additionally, disability insurance can cover your expenses should you be unable to work.
There are many more options to explore in order to provide for your growing family, but it’s important to understand how expenses accumulate and to prepare for them before having your first child.