by: Chris HutchinsFounder/CEO Grove
Even if you consider yourself to be a financially savvy person — you read the blogs, listen to the podcasts, etc. — a whole new world of considerations surface when your personal finance lens shifts from just you, to you and your family.
For some, it can be a challenge to actually start thinking of themselves as a “family” when expecting, or before your first child arrives. Still, instead of budgeting for date nights and weekend getaways, the reality is your dollars will now go towards diapers and daycare. For others, starting a family might have taken a less traditional route that required even greater planning and more financial front-loading. No matter how you arrive there, starting a family is a lot to wrap your head around.
As you start to build a strategy for your family’s finances, there are a few pieces of the puzzle you simply can’t afford to ignore. While this isn’t a comprehensive list, it’s a great place to begin, and a good way to frame conversations with any financial planning, tax, or estate planning professional you may loop in for assistance.
Here are some family finance basics you should think about:
1. Be realistic about your budget
Don’t immediately slash and burn your entertainment budget, but do consider reducing by a fixed percentage you’re comfortable with each month. Know that the average cost of raising a child in the U.S. is around $1,395 per month (through year 17). To help minimize expenses, especially in the first year, focus on your baby’s actual needs instead of your wants for them. Do you need the top-of-the-line car seat if you live in a city and hardly ever drive, or should you prioritize spending on a better stroller? Weigh the odds and spend in a way that makes sense for your family’s lifestyle.
2. Get adequate health insurance
Infants are treated as an extension of the mother and are often covered by her health insurance for their first 30 days (check your policy to be sure this is true for you). After that, they will have to be added to your policy. Having a child is a qualifying life event, which means you won’t have to wait for the open enrollment period to add your baby to your insurance. Once you’re covered, you can use your personal network or online resources to find a pediatrician within your provider network. Consider pre-tax payroll contributions to a health savings account (HSA) or flexible spending account (FSA) to help with any qualifying, out-of-pocket medical expenses.
3. Tackle life insurance and estate planning
No one wants to think about death, but now that you’ve got someone depending on you, it’s your duty to make sure they’re supported in the event something terrible happens. Especially if you know you’ll risk leaving behind substantial debt or taxes. Both parents should be adequately covered with life and disability insurance and a will or estate plan. Also, be sure to designate beneficiaries. A lot of these things can be tackled independently, but don’t think twice about seeking professional help if it becomes complicated. It’s too important to overlook.
4. Pay yourself first
You may feel guilty for putting money towards your own debt or saving for your retirement first, but know that when it comes to giving your child a hassle-free financial future, not having to worry about supporting you in old age is one of the best gifts you can give them. Being burdened with an aging parent who has not planned for senior living and healthcare costs robs your children of the opportunity to focus on their own financial goals as adults.
5. Make a plan for their future
Once you feel solid in a strategy for your debt and retirement, and you know that your regular household financial needs are being met, consider a 529 savings plan for your child’s future education expenses. This is a great way to help build a pot for them to draw from in the future, or to help manage their childcare and education expenses today. 529 plans are tax-deferred and provide an opportunity for others to make a gift deposit into your child’s account — perhaps as an alternative to typical birthday or holiday presents from grandparents?
Beyond the added expense of diapers and daycare, there are many other financial considerations for families. How you approach each of them can be the difference between a bumpy road and a safe, secure future.
If you’re interested in honest, straightforward advice about your money, consider reaching out to a professional. The team of Certified Financial Planners™ at Grove would be happy to get to know your family and goals, answer any questions you may have, and help you create a strategy for financial success.
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