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Author: Ed Carter
August 2019
Becoming a first-time parent is one of the most dramatic life changes that anyone can experience. Along with the joys and excitement comes the realization that you’re taking on a lifelong responsibility, which includes a significant financial burden. It can be stressful, exhausting, and emotionally overwhelming, but it can also reveal a capacity to love you never knew was possible. Fortunately, there are financial steps you can take to alleviate some of the stress and maximize the joyous parts of your new journey.
Calculate Your Net Worth
It will help to first get an idea of where your family stands financially. Calculating your net worth — your assets minus your liabilities — is a great place to start. Your assets are anything you own, such as cash, savings, investments, life insurance and annuities, your home’s value, and other properties (e.g., cars, boats, household furnishings). Your liabilities include anything you owe money on, such as credit cards, mortgages, auto loans, student loans, and so forth. Bills such as household utilities and taxes due are also liabilities.
One of the most essential aspects of figuring your net worth is knowing the market value of your home and how much you still owe on your mortgage. There are websites that offer quick and easy home value estimates. It’s important to note, however, that there is much criticism concerning the accuracy of such estimates. If in doubt, bring in a professional for an appraisal.
Prepare for Childcare
While you may need to figure out certain aspects of childcare as you go, having some kind of plan drawn up before the baby arrives will give you some peace of mind. One thing to figure out is whether a parent will be staying home with the child. Sending a child to a day center costs families an average of $10,468 per year in the United States, while a nanny averages $28,905. While having a parent stay home will save you money on daycare expenses, you have to consider the money lost from running the household on one income instead of two. If it’s an option, having family members or friends watch the child can be the most cost-effective. Even then, however, raising a child is expensive when you factor in home needs, nursing and feeding, and other daily necessities.
Look Into Life Insurance
There’s no question that you and your spouse want to be around as long as you can to take care of your child as they grow up. But if tragedy strikes, having life insurance plans in place will help provide for the surviving spouse and child. Life insurance can help pay off a mortgage, car loans, revolving credit, student loans, and a slew of other debts that could make things extremely difficult for your surviving spouse. It can also help with college expenses.
Start Saving for College
Starting a college fund is a hot topic. Plenty of people talk about it, but the fact is that only 36 percent of middle-income and 29 percent of lower-income families are saving money for their children’s college expenses. Also, the average family plans to set aside about $38,953 per child but will end up saving only half of that amount. If you’re serious about having money for your child’s college when the day comes, there are several plans and investment accounts that can be used as the vehicle, such as 529 plans, Roth IRAs, prepaid college tuition plans, and others. Programs like Gift of College, Upromise, and LEAF are also designed to benefit college funds.
If you’re becoming a parent for the first time, you can prepare financially to reduce the stress and highlight the joys. Figuring out your net worth will let you know where your family stands financially. Doing research and figuring out childcare ahead of time will save you some stress when the baby arrives. Looking into life insurance policies and college funds are also worth your time. Most importantly, try to enjoy each moment of your new adventure.
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