First and foremost, congratulations on your child! Being a new parent is such an honor!
Now, as a new parent, youโll now have the important responsibility of caring for another human being. Like any gift you receive, a child is something to not only care for but also cherish forever.
Though, you might have questions or concerns on how to be financially stable when raising a child. Youโre not alone. Many new parents have this same concern as you do. According to PR Newswire, the average cost of raising one child until the age of 17 is $233,000, nearly $14,000 per year. More concerning, The Bump suggests that the 3ย financial concerns that new parents haveย are the following:
- How will they afford their child?
- How will they be able to pay for their childโs college? AND,
- What if something happens to the parents themselves?
1. Not Having A Budget
First, having a budget is a must. Even if youโre well off financially, you should still think about finances. Now, keep in mind that having children isnโt the same as living on your own. โThat means that whatever activities, for example, that youโd use to do pre-baby would no longer be available to you after you have your baby. Suppose you would go to the bar and spend money on drinks. Or, you might have had the habit of saving money pre-baby. Now, with a new addition to the family, you find yourself spending money on your bundle of joy. Thatโs totally normal. No matter the case, youโll need to have a plan, when it comes to budgeting. Budgeting helps you see what you need, and what you donโt need. Rather than spending blindly, budgeting helps you be smarter with your money. Think about the types of groceries that youโll need for both you and baby, along with the bills, doctor visits, transportation needs, and so on, that you and your baby will need. In this way, you and baby can be ready for any other expenses that might spring up on you. Speaking of any other expenses that might spring up out of nowhere, this leads to the second point โฆ2. Not Having A Safety Net
Yes, having a safety net is essential. Sometimes, life might throw some curveballs at you without warning. This is especially common for new parents since theyโre still new to the game. Hereโs one example: Suppose that you have a car to run errands with your child in tow. What would happen if your car broke down, or you get a flat tire? Would you have the money to fix your car? Would you have a spare tire on standby? Hereโs another example: No new parent wants to see their child get sick or hurt. But what if your child gets sick or injured? Would you be able to afford their medical bills? Their doctor visits? Their prescribed medications? Thatโs why itโs important to set up an emergency fund. Essentially, you set aside money every time you get paid (if you have a job); or, if you receive money as gifts, you can set that aside for emergencies. In this way, youโll create a safety net for whenever things like medical or repair crises arise.3. Spending Too Much On Baby Things
Who wouldnโt want to spoil their first child? In fact, as a first-time parent, you would want to treat your child to many things like toys, clothes, and other nice things. After all, you only want the best for your bundle of joy. However, while itโs great to treat your child with toys and goodies, itโs still important to be wise about your spending habits. Essentially, you have to think about the things that your baby will need, including:- Food
- Clothes, shoes, and diapers
- Toys that are effective in entertaining your child
- Doctor visits and medicine, etc.
4. Spending Too Little On Baby Things
Now, just because youโd want to save money, doesnโt that you should deprive your child from having things like toys, food, and other necessities. Itโs important to make sure that your child is well-fed, well-entertain, and well-off. Thatโs why you should set a good budget for how much to spend on your child, and how much to save. Just as long as youโre not cheating your child out of certain things, you should be okay on the financial part of things. Remember the essentials (as mentioned in the previous point):- Food
- Clothes, shoes, and diapers
- Toys that are effective in entertaining your child
- Doctor visits and medicine
5. Not Saving For Retirement
One of these days, youโll find yourself needing to retire from your job. While retirement can be a new phase in your life, youโll need to be ready before that day comes. That means, now is the time to start saving for retirement, if you havenโt done so already. (Yes, right now!) But how can you save for retirement? Well, there are a few options: While saving for your childโs college fund is just as important (which we will cover later on in this guide), you would still need to think about squirreling away money for retirement. If you need to borrow money from your childโs tuition, you can. Plus, if your place of employment offers 401(k), then donโt hesitate to sign up for it. Whatever you can do now to save for retirement, do it now! Otherwise, you wonโt have a nest egg to be cushioned with in your golden years.6. Not Looking At Eligible Tax Savings
Believe it or not, there should be tax breaks and savings, if youโre a parent. In fact, there are tax breaks for almost any situation, if you do your homework really well. With that said, consider the following tax exemptions:- The popular personal exemption of $3,950 per child
- The child tax credit of up to $3,000 for each child, depending on how much you make
- The child and dependent-care credit, which covers up to 35% of the cost of things daycare, pre-K, day camp, etc.
- The adoption tax credit (up to $14,300 to cover things like fees, court costs, and travel expenses, etc.), AND
- Tuition for special-needs students (provided that the tuition and other unreimbursed medical expenses exceeds 10% of your adjusted gross income)
7. Not Looking Into Life Insurance
Life insurance, whether you have children or not, is important for anyone and everyone. Having life insurance is essential, because if you, your spouse, or both you die for some reason or another, then itโs important for your dependents โ your beneficiaries โ to be provided for when youโre gone. One option is to get some life insurance coverage through your employer. However, you can never rely too heavily on it, because thatโs not enough to cover everything if something were to happen to you. Plus, if you get laid off, or you get fired, youโll lose your employer-provided insurance. So, whatโs the recommended amount that you need as part of your life insurance plan? Itโs important to have at least a $500,000 policy โ and thatโs bare-bones minimum. In addition, youโll need to invest in a group policy rather than an individual one, because the former option is much cheaper than the latter. As for when your children grow up, youโll need to think about keeping them insured until they are through their schooling and no longer need your financial support. Once your children grow up, have paying jobs, and are living independently, then youโll no longer need them to have them insured on your plan. You can always recommend to them your insurance company, if youโve had good experiences with said company. Plus, consider the idea that when your dependents are through college and donโt need financial support, you can opt to convert the insurance policy to a permanent whole life or variable life one. By doing so, you can decide later if whether or not you want lifelong coverage.8. Not Looking At Disability Insurance
It can be devastating for your child to either grow up to have a disability or be born with one. However, that doesnโt mean that you canโt find disability insurance for them. Even if youโre financially well off, you should still think about getting disability insurance. Like anything else in life, debilitating injuries can lead to disability, which can cost you thousands of dollars if not covered by insurance. There are a few ways to get disability insurance: a.ย If your place of employment offers insurance, then sign up for it. Once you satisfy the conditions for it, youโll be covered by their insurance. b. Look at different insurances and plans and see which one is the right for you and your child, along with how much it will cost. Now, if youโve been out of work for a while, be sure to research policies that can help you while youย look for another job.9. Signing Your Child Up For A Savings Account
Like anyone else, your child will eventually learn to save money. However, when opening a savings account for your child, donโt do it prematurely. While it might be tempting to open a custodial savings account after a relative sends your child a check or money, itโs a big no-no. Why? Because if you need money right away, you canโt access it. Plus, having a savings account for your child can make you ineligible for financial aid. So, how can you ensure that your child has a good nest egg? Opt for a 529 plan instead. By putting your childโs money in a 529 college-savings plan, the money grows tax-free as long as you use it toward college expenses eligible under that plan. Be sure to read up on your bank/institutionโs rules and policies as you set up a 529 plan for your child.10. Ignoring A Healthcare FSA
According to Healthcare.gov, aย flexible spending account (FSA)ย is where you put money into it, and then use it to pay for certain out-of-pocket healthcare costs, while not having to pay taxes on it. Ignoring this beneficial account can cost you in the long-run. Without an FSA, youโll risk paying for doctor visits, bills, etc. out of pocket, which can take a toll on your wallet. So, why not save big by signing up for it? All you have to do is take into account the following:- Your doctor expenses
- Dental costs
- Your prescription costs
- Vision, etc.
11. Not Having The โMoney Talkโ With Your Child
One of these days, youโll need to talk to your child about money. Otherwise, how else would your child:- Learn to save money?
- Learn to spend their money wisely?
- Learn to use and balance a checkbook?
- Learn to save for college?
- Learn to set up budgets, etc.?
12. No College Fund
College is a great thing, especially for your children. Now, while college can be an exciting experience for your child, you might be worried about how youโll be able to afford it. If you havenโt already been saving money for their college fund, then itโs normal to worry. Therefore, the best time to think about your childโs college venture is when theyโre born. Besides the 529 plan that weโve discussed earlier, there are other, attractive tax-free college savings options to consider for your child:- State-sponsored plans (tax-freeย as long as the money is used for college costs)
- Plans managed by a brokerage or mutual fund company (in league with state-sponsored plans)
- Plans that let your child attend any schools of their choosing
- Coverdell education savings accounts (which lets you contribute up to $2,000 a year in tax-free accounts, though has limits of $220,000 for couples filing jointly, and $110,000 for singles)
13. Buying Life Insurance Willy-Nilly
While life insurance is desirable in todayโs standards, itโs still important to do your research ahead of time. In fact, you wouldnโt want to be stuck with an insurance policy that wonโt help you and your child the slightest, or would cost you a lot for the premium. Therefore, itโs important to look for insurance that can help you in the following ways:- Itโll cover doctor visits and medical bills.
- Itโll cover things like food and other necessities.
- Itโll cover child care needs, and so on.
14. Ignoring Childcare
While giving birth can be costly by itself, so is childcare. Nowadays, daycare centers can cost an arm and a leg, in order for your child to go there for just one week. Plus, babysitters can be costly, even if you hire them to watch your child for a day. The good news is, when it comes to childcare, there ARE options. Depending on your income, schedules, and life situations, you should research which childcare options are right for you. Would you rather pay for a daycare center to look after your child? Would you rather hire a babysitter to watch your child? Would you rather have a relative care for your child? Or, would you rather devote your time and energy on childcare? Whatever you choose for childcare is up to you. Plus, think about why youโre in need of childcare:- Are you working full-time or part-time at a job?
- Are you looking for work?
- Are you working remotely, and need time to work?
- Do you need a break from childcare every so often?