The physical, emotional, and, yes, financial changes that come with having a child are significant. Remember to consider the cost of your baby’s first year as you prepare for their arrival by neglecting to plan for your family’s Things Financial Advisors.
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Jamilah McCluney, a financial advisor, tells Parents: “Turn to any social media channel, and you’ll see anything from gender reveals to baby showers and even “sip n’ sees.” As a financial counselor, McCluney asserts that you should do just as much financial preparation in advance as you would for a new child.
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According to the USDA, raising a child in the U.S. from birth to age 17 costs an average of $13,741 each year, not including college tuition. If inflation charges are considered, the amount rises to over $16,000 each year, so you should make a strategy and start saving as soon as possible.
“It’s crucial to start using these components right away. The earlier you start, the longer you have to raise money and expand “recommends McCluney.
For you to feel sure that you are as financially prepared as possible before welcoming your new baby, financial advisors want you to know the following.
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Your actual annual daycare expenses may be higher
Make sure to begin saving for childcare costs since childcare costs continue to grow. According to the most recent figures from the Center for American Progress, an infant’s annual childcare costs are approximately $16,000, or $1,300 per month. In cities, the expense of child care can be significantly higher, at almost $20,000.
According to Michelle Young, an Ameriprise financial counselor headquartered in Minnesota, a monthly savings plan can be beneficial. If you practice saving monthly daycare costs in a different savings account as a family when you learn you are pregnant, you will get used to the extra price before it occurs, advises Young. According to her, you can also use the money you save in this account for additional unforeseen infant costs.
Learn about the parental perks your firm offers
f your employer provides parental benefits, be knowledgeable about them to utilize them as you prepare to have a child. According to Young, some advantages to being aware of or asking about include parental leave rules, if you’ll need to use short-term disability, any childcare benefits provided, and dependent care savings accounts that can help you lower your taxable income.
Review the terms and costs of any family healthcare plans offered by your employer, if any, since you’ll be adding your new child to your insurance. If the parents have different health insurance, choose the one that best suits your family’s demands, advises Young.
If you have a Health Savings Account (HSA), use it
About health advantages, you ought to utilize your high-deductible health plan (HDHP) if it includes an HSA. According to certified financial advisor Mike Hakimi, owner of Black Dog Financial Planning, “They are a great savings vehicle that is underutilized.” Check to see if your employer contributes to your HSA or matches your payments for additional savings. When you have an HSA, pre-tax money from your paycheck is transferred there, where it can grow tax-free and be invested or utilized for medical costs.
“This can result in substantial tax savings, especially in light of the high price of raising a child. An HSA is not “use it or lose it,” unlike other medical savings accounts such as an FSA “explains Hakimi. You can take the funds in your HSA account with you if you decide to leave your employer because they will roll over into the next year.
Hakimi advises beginning a sinking fund if you do not have access to an HSA or another tax-advantaged account. A sinking fund is a savings account you should keep separate from your emergency fund. It can be kept at your main bank or online in a high-yield savings account. When you find out you’re expecting a child or even when you first start trying, Hakimi advises beginning one.
“For the next eight months, a $250 biweekly deposit would accumulate to about $5,000. This might pay for most of the medical costs, “He elucidates.
Put money aside for your child’s schooling
Education costs a lot, so start saving early. Jeanne Berger, a private client adviser at J.P. Morgan Wealth Management, tells Parents that it is never too early to begin saving for college. Hakimi and Berger advise beginning a 529 college savings plan for a college fund.
“If utilised for education costs, the invested funds can be distributed tax-free and allowed to grow tax-free. Depending on the state in which you reside, you may also be eligible for a state tax credit or deduction “Hakimi explains. As a soon-to-be parent, you will have a lot of bills to cover; nonetheless, you should still make an effort to save for your child, even if it’s not explicitly for a college fund.
McCluney says, “Save for emergencies, invest for new homes, save for their future education (in a 529 or other financial vehicles), but save anyway.”
Plan and keep in mind the increased financial burden of having a baby.
Once more, make a strategy and start saving early to cover all the costs (anticipated and not) associated with having a baby.
In the early stages of planning for children, “the majority of people forget about the size of the automobile, the number of rooms in the house, and occasionally the size of the dining room table,” adds Young. She advises making a plan and considering the financial changes resulting from your new addition.
Berger advises meeting with a financial advisor to prepare for these changes, saying that with a new baby, your expenses will probably change and that you may want to think about new goals to incorporate into your financial strategy. Berger is the mother of three children, ages five, three, and five months.
Create a budget for expected expenses, increase your savings, and make sure all of your vital financial documents are updated, and you should be in a good position for the baby (both you and your finances).