As if there isn’t enough to think about when planning for a baby’s arrival (major lifestyle changes, childcare, creating a safe and comforting environment, to name a few), parents-to-be or those planning to start a family should take a good, hard look at their financial circumstances.
Since 1960, the USDA has been issuing a report that informs consumers the cost of raising a child. The most current report estimates that for children born in 2015, a family will spend between $12,350 and $13,900 per year from birth through age 17 on child-rearing expenses. (In total, that’s an average of $233,610).
If you’re a soon-to-be parent, you may wonder how you’ll manage these costs. Here are a few considerations for your finances as you embark on the awesome responsibility of parenthood!
Make sure your spending plan is smart.
As your living expenses are about to increase, it’s more important than ever to tighten up your spending plan. It is often recommended that you ensure your housing costs account for no more than about 25-35% of your monthly take home pay, transportation costs account for 15%, and that you save at least 10%.
Have an emergency fund.
Here is a helpful read for getting yourself and your family prepared to handle job loss, or an unexpected expense such as medical bills. If you already have an emergency fund, consider boosting the amount you keep in it, to account for the increased cost of living when you have children.
Consider life insurance.
Securing your family’s future in the event of your death or your partner’s death is even more important now that you’ve got a little one depending on you. According to the Ohio Department of Insurance (ODI), life insurance can help put your child through school, pay the mortgage or other debts, and reduce the overall financial burden on your family of having to continue without you. ODI has a helpful tip sheet to help you understand the basics and the importance of life insurance. You can also use their website’s toolkit to help with things such as shopping for life insurance.
Of course, these are only a few of the many considerations, financial or otherwise, that new parents should make. To get an idea of some other ways to improve your situation before baby, start by taking this Financial Fitness Quiz!