Welcoming a new child into your family is an exciting and joyous event – but it’s also an expensive one. However, by taking the right steps, you can accommodate the added costs without jeopardizing your financial security.
How much will you need to spend once you bring a child home? The average cost of the first year of a new child’s life is about $13,000, according to the U.S. Department of Agriculture. Clearly, all those receipts for diapers, food, clothing, toys, furniture, childcare and other expenditures can really add up.
Probably one of the most important moves you can make to cope with the costs of a new child is to track your spending. An app might be one avenue to pursue. Apart from providing basic budgeting capabilities, there are some good – and free – financial apps that offer things like debt payoff and goal tracking features. Plus, you can receive alerts when you go over your budget.
You might also want to consider pre-made spreadsheets, though sources such as Microsoft Office and Google Drive. These spreadsheets can be used for monthly personal budgets, monthly family budgets, household expense budgets, and more.
These tools can make it easy for you to track your money, but the technology ultimately can’t hold you accountable. You – and your spouse or partner if you have one – must “own” your choices. And that means you need to communicate with each other on what you must spend and what you can do without. For example, if you buy a “venti”-sized drink from Starbucks every workday, you could end up spending more than $25 a week – or $100 per month. These are the types of discretionary purchases you’ll need to scrutinize.
While it’s important to gain control of your spending and establish a workable budget, you also need to consider other financial moves to reflect the addition of a child to your family. Here are just a few:
- Get adequate life insurance. With all the expenses that come with a new child, you might think that you can’t afford an “intangible” such as life insurance – but because you do have that child, you can’t afford not to be insured. Fortunately, a term life insurance policy is typically quite affordable; later on, if it’s appropriate, you might want to consider some type of permanent insurance.
- Build an emergency fund. It’s hard to predict what sort of unexpected costs you could incur with your new child. And that’s why it’s a good idea to start building an emergency fund containing three to six months’ worth of living expenses, with the money kept in a liquid, low-risk account. It may take some time to build such a fund, but even small monthly contributions can help you on your way.
- Review beneficiary designations. When you add a child to your family, you may want to review the beneficiary designation on your IRA, 401(k), life insurance and other accounts. You may also need to update your will, possibly naming a guardian for your child.
- Start saving for education. It’s never too soon to start saving for the high costs of higher education. As soon as you feel you can afford it, consider investing in a tax-advantaged 529 plan or other college-funding vehicle.
- Make tax-related moves. You’ll want to update the number of dependents on your W-4 form at work. Also, check out your eligibility for the federal Child Tax credit.
To learn more about which financial moves you should explore upon the arrival of a new child, contact an Edward Jones financial advisor. You might also want to look at our growing your family checklist.
Welcoming a new child into your home can be a thrilling experience. And the more financially prepared you are, the happier the experience will be.