What’s Your Baby Financial Plan?

Baby Financial Plan

So you’re having a baby. You can count on a few things: You will blow up your Facebook wall with TONS of photos, you won’t let anybody near your baby unless they first apply hand sanitizer, and you will love your baby more than anything in the world.

A baby also comes with a lot of emotional, financial and physical stress. But don’t freak out. With a budget and plan in place, you can reduce the financial stress of raising children. We can’t do much for the emotional and physical stress. That’s not our area of expertise.

Here are four ways to prepare for the financial challenges of parenthood:

  1. Accept the fact that having children is a lot more expensive than not having children.

First-year parents discover the expenses of a child the first time they purchase diapers and formula. But they don’t end there: Your son will decide he’s too old for kids’ meals; your $500 plane ticket will double when you can no longer hold your daughter in your lap. And while, yes, your daughter is cute, the airline does not give cuteness discounts.

Daycare is an enormous expense. If you continue working, you can safely assume you’ll be spending $1,000 or more a month for daycare. And that’s just for one child.

School isn’t much different. Even if your child attends a public school, there are activities and before- and after-school care to consider. Many extracurricular activities can cost anywhere from $100 to $500. Even an activity as innocuous as math club might cost $300.

  1. Map out exactly where your money is going, and then set goals for where you think it should be.

Are you telling your money where to go, or is it disappearing like socks in a dryer? You can identify your spending habits with a spreadsheet. Doing that allows you the chance to reflect, “Where can I cut back?” Maybe you want to limit the money your family spends on groceries to $400 a month. A spreadsheet documenting where every penny goes can reveal where you need to cut back.

  1. Have at least three months’ worth of your salary in a savings account.

Budgeting is very useful in the short-term. But raising a child requires more than a budget. It requires a long-term financial plan.

This starts with your short-term emergency fund. To adequately prepare for a worst-case scenario, try to have at least three months’ worth of your salary in a savings account. That way, if something catastrophic happens, you’ll have some wiggle room to recuperate.

  1. Take care of yourself before you take care of their college.

You might be thinking about college as an expense down the road. But before you open a 529 College Savings Plan, be careful you’re not neglecting larger, more pressing expenses, like a long-term retirement plan.

It’s good to want to send your child to college. Some parents begin to invest $1,000 a month in a 529 College Savings Plan when their child is as young as 2 or 3. But if you don’t invest enough into a 401k or a Roth IRA, you might inadvertently burden your child when they’re on their own and you’ve exhausted your retirement savings.

Having a child is expensive. While budgeting can help you know where your money is going, it’s good to determine a long-term financial plan for costs down the road.

If you have any questions about setting up your financial plan, contact McLean Asset Management.

 

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