Whether you're having a baby or adopting a child, growing your family is a big lifestyle change. The first year with a new child, whether your first or your fifth, can be overwhelming on many levels. One way you can make sure you and your family are adequately prepared is by organizing your finances to support your new addition.
There are several ways you can get started, but the first step is calculating how much your new bundle of joy will cost.
Calculating the Cost of Having & Raising a Child
If you're having a baby, or are planning to adopt, you should add up the total costs you and your family can expect. The average cost to have a baby in the United States (with health insurance) is approximately $10,808, according to FAIR Health. The average cost to adopt in the United States is approximately $43,000, according to a report in Adoptive Families Magazine.
Knowing the different costs that go into these numbers will help you better prepare. If you're having a baby, you should research the cost of:
- Prenatal care
- Hospital stays
- Both natural and cesarean births
- Additional care costs (like hiring a doula, etc.)
If you're adopting, you should ask your adoption agency or primary point of contact through the foster care system for a detailed list of costs to anticipate. These might include:
- Home study fees
- Registration fees
- Cost of caring for your adoptive child's birth mother
- Adoption agency fees
- Medical costs
It's also important to reach out to your health care provider and your employer to see what costs they help cover. Your employer may offer a stipend for child care or partial reimbursement for adoption, and your health care provider can help you understand what's covered as far as medical expenses go.
Once you've calculated how much you will likely be spending to have or adopt your child, you can start doing some longer-term projections. The average cost of raising a child to 18 years old is close to $234,000, according to numbers from the U.S. Department of Agriculture.
However, before you get overwhelmed by that figure, dig into what you can expect in your child's first year. Breaking out expenses into annual baby steps, so to speak, can be helpful.
Here are a few things to include in your first-year budget:
- Nursery or room setup for adoptive parents of an older child
- Stroller/car seat/registry items
- Wellness visits
- Extra doctor trips (think: ear infections, etc.)
- Formula and/or food
- Child care
Bulking Up Your Emergency Fund
The truth is that kids are unpredictable, and nobody wants to be stressed out about money when their baby has a raging fever in the middle of the night. If you already have an emergency fund, you're in a good spot. If not, start by trying to save up to three months of living expenses.
Once you've accomplished that, work to grow your savings to six-12 months of living expenses. This will help cushion you against the inevitable costs of raising a child, and help you avoid debt when unexpected bills come in.
Determining Child Care Needs
Are you and your spouse or partner both planning to go back to work? Will one of you stay at home? You'll need to determine whether child care is a necessity. You have several options available, so make sure you do your research. You may choose to have someone come stay in your home with your child, or you might choose a local day care.
Even if you are planning to have one parent stay home, you'll still need to budget for a babysitter periodically. Talk to your spouse or partner about how often you'd like to have a date night, when you might need help with your child, and whether long-term child care is something you need to explore.
Are you planning to cover all or a portion of your child's college education costs? If so, now is a great time to set savings goals for your family. Once your child is born or adopted, you can open a 529 college savings account to start saving for qualified education expenses.
It can help to have a plan in place ahead of time to determine how much you want to set aside each month or year until your child graduates high school. Be clear with relatives, as well. Babies rarely need "extra" birthday toys or holiday gifts, but a contribution to their future college expenses is always appreciated!
When you have your child, they'll need to be added to your health insurance policy within 30 to 60 days of being born. Make sure you follow up to ensure this change is processed. Sometimes insurance agencies miss paperwork, and you don't want your new child to go without coverage! You'll also want to add your child as a contingent beneficiary to any life or disability insurance policies.
Disclosure: For a comprehensive review of your personal situation, always consult with a tax or legal adviser. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Before investing, the investor should consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 plan.
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