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November 4, 2011:
Baby-proof your finances
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Raising children is one of life’s true joys...but let’s face it kids are expensive.
Financial experts say a home is the biggest investment most people will ever make, but they're forgetting about the cost of raising children, which far exceeds the average home price!
Fortunately, most people don't base this important decision on financial issues alone, but as with any other decision that will impact your financial situation, it's smart to go into it with your eyes wide open and to be prepared. The changes that accompany adding a new little member to your family can be stressful, but you can reduce the stress greatly by minimizing the financial factor.
A good approach is to think through a few key items before the baby comes because once you see that adorable face your brain will short-circuit and everything else becomes less important...as it should.
As soon as you start thinking about having a baby, start a baby fund. Put a set amount into the account each pay period to cover your portion of the hospital and other costs at birth, as well as unexpected expenses going forward and there definitely will be some.
Permanently adjust your expenses by paying off debt and eliminating expenses where possible now so you can free up some of what you earn each month so it can be used for new expenses, like diapers, formula or even day care.
Finally, be realistic. Consider how you'll manage on the reduced income caused by time off for the birth or permanently if one spouse plans stay at home going forward. Regardless of which way you go there is a significant financial impact to your personal finances:
- If you plan to return to work focus on lost wages during maternity leave and the cost of child care once you return to work.
- If you’ll be living on a single income be ready for downtimes. Establishing a savings account you can draw on if something major happens in your life is always a smart financial strategy, but if you’re living on one income it’s even more important! You need at least six months of living expenses available in cash.
- Either way, the key is to be realistic about expenses and save ahead of time because it’s highly unlikely that you’ll be able to save once the baby is born.
Once you've evaluated the costs and have come up with a plan to cover them, it’s time to relax and enjoy the new addition to your family.
If you’re thinking about having a baby you might be surprised by how much it will add to your monthly expenses. Check out this great calculator from bankrate.com.
» VIEW ALL FINANCIAL FRIDAY SEGMENTS
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