If you are expecting or have recently added a child to your family, you have likely begun making big plans for the future. One of the most important aspects to consider while preparing for your new arrival is how your financial habits, responsibilities and goals might change. Here are seven things to consider:
- Think about lifestyle. How will your baby impact your day-to-day activities? Include family outings and increased expenses into your budget to avoid surprises. Keep in mind that future hobbies, like traveling soccer team, music lessons or private coaching, may take additional investment. If your ideal lifestyle involves a new car or home, consult a financial professional about the pros and cons of making the move today – or further down the road.
- Consider childcare costs. Care.com’s 2021 Cost of Care Survey found that more than 3/4 of parents in the U.S. spend >10% of their income on childcare. In some U.S. states the cost for one year of care can be more than one year of college. So, whether you choose daycare, a nanny, an au pair, an afterschool sitter or a combination of options, make planning for this expense a priority.
- Re-evaluate your career. The arrival of a new child may cause you to think differently about your career goals. Perhaps you want to earn a promotion, a higher salary or better benefits, or pursue continuing education. You might be ready to reduce your hours or become a stay-at-home parent. Evaluate how the move may affect your paycheck, retirement savings and benefits.
- Prepare for tuition. Private elementary or secondary school often comes with a price tag and the cost of college continues to rise at a pace faster than inflation. Tax reform expanded the use of 529 plans, a saving option most commonly used for higher education expenses. You may now withdraw up to $10,000 federal income tax-free per beneficiary, per year to pay for kindergarten through 12th grade tuition at a public, private or religious school. And, if funding college tuition is important to you, know it’s never too early to start saving.
- Prepare for the unexpected. Unexpected events can affect your finances at any time. Resolve to build or maintain an emergency fund that could cover three to six months of expenses, in addition to prioritizing your retirement savings. After your baby arrives, update your estate plan and insurance coverage (e.g. medical, life, disability policies) as necessary.
- Ponder family values. Start thinking about how you want to teach your child about financial responsibility. Will you give him or her an allowance? What is your vision for giving birthday presents, holiday gifts, vacation souvenirs and other items to your child? What money values do you want to pass down? Being intentional early can help set clear expectations and ensure you and your spouse are on the same page.
- Plan for your family bucket list. Many parents dream of showing their children new places and allowing them to have a variety of experiences. Think about what activities matter to you and incorporate them into your financial plan. Taking an annual vacation, owning a vacation home, buying season tickets to your favorite team or purchasing a boat are common goals for many families.
- Expanding your family often has a way of putting your priorities into perspective. If you would like an objective opinion on how to best plan for your goals, talk with a financial advisor in your area.
1 “This is how much childcare costs in 2021” Care.com, June 10, 2021.
Timothy Wakefield is a Financial Advisor with Independent Investments Group, a financial advisory practice of Ameriprise Financial Services, LLC. In Florence, Alabama. He specializes in fee-based financial planning and asset management strategies and has been in practice for 7 years. To contact Timothy, call 256.765.3637 or email Timothy.Wakefield@ampf.com.