But with the cost of raising a child now estimated to be $235,000 not including college, it’s important for expectant parents to also prepare financially. We’ve pooled our knowledge – one of us is a relatively new empty nester with first-hand experience raising children and the other is a former personal finance reporter due this summer who now works on Russ K’s team — to come up with this quick list of what to do financially when you’re expecting.
Start Saving: According to the Department of Agriculture’s latest estimates, raising a child to age 17 now costs about $235,000 and that figure just includes expenses like food, housing, transportation and child care. Add college into the mix and the cost of a child can run much higher. The upshot is that it’s important to get into the habit early, even before birth, of saving some money each month to cover child-related expenses. Why? The sooner you start saving, the longer your money has to grow.
Research College Saving Options: When it comes to saving for college in particular, soon-to-be parents may want to consider using a 529 savings plan. With such a plan, otherwise known as a qualified tuition program and typically sponsored by states, your contributions grow tax deferred and then can be withdrawn federal tax free as long as the funds are used for higher education expenses.
Before selecting and opening a plan (which you can do before birth with a workaround), you’ll want to do your due diligence (this site can help), including researching what investment choices different plans offer.
Once you’ve decided on a plan, how do you know how much to save? For some advice, check out Sue’s older posts on tools to use to calculate college savings and on ways to cut the college the tuition bill.
Get Your Estate in Order: Before your baby arrives, it’s also a good idea to consult with an estate attorney to get a living trust and or will created. As Sue wrote in May, in these documents, you specify who would take care of your young children in the event that something happens to you or your significant other as well as who will receive your assets. If you don’t have this paperwork, you’re letting state law make these important decisions for you. An estate lawyer can also help you craft your after-death documents in a way to potentially mitigate some of the tax consequences of passing away, potentially leaving more money for your child.
Consider Buying Life Insurance: If something happens to you or your significant other, life insurance can help your surviving family cover the bills, including child-rearing expenses and college costs. And since life insurance is cheaper when you’re young and healthy, consider buying at least some coverage before or soon after your new baby arrives to ensure the costs of raising your child will be covered in even the worst case scenario.
What did we miss? In the comments section below, let us know what else expectant parents should do financially to prepare.