By Sara Bailey
Welcoming a new child is exhausting, joyous, and nerve-wracking, and all at the same time. Financially savvy parents know that this marks a turning point in their lives. But nearly half of parents didn’t feel financially ready to welcome children in the first place.
So, how can you continue to address your financial future while growing as a parent? Here are the best ways to prepare your finances for life with a newborn (and beyond).
Think About Making Room for Your Family
Whether you plan to have one child or five, housing your family will be one of your first—and ongoing—priorities. For many adults, the urge to buy a house becomes stronger as parenthood looms near. However, proper planning is vital, regardless of how high your income is or how excellent your credit score.
Part of the equation is an adequate down payment. It can be daunting to get a down payment together—especially when you’re paying rent and other bills. But you will need anywhere from 3 percent to 20 percent of the sale price, depending on the type of mortgage you take out.
Plus, you need cash to cover closing costs. Closing costs range between 3 and 6 percent of the purchase price, and you don’t want to wait until it’s time to sign to get the money together.
Plan for a Not-So-Bright Future (Just in Case)
No one—especially a new parent—wants to plan for their unexpected passing. But that’s precisely why you need to think about burial insurance. Leaving your family without safeguards to pay for your burial, for example, can make an already excruciating situation even worse. Check out this site to help you better manage your wealth.
As the Federal Trade Commission explains, funeral costs include fees for embalming, caskets, burial vaults and grave liners, and even the preservation products used. By looking at average funeral costs in your area and asking different funeral homes what their fees include, you can determine a suitable coverage amount and secure a competitive rate for burial insurance.
Don’t Neglect Your Own Wealth
When children arrive, it’s understandable to feel an immense responsibility—as well as immense joy—in response to becoming a parent. And while saving for your child’s financial future is thoughtful and necessary, you must also reflect on your own wealth.
For many adults, helping finance college for their adult children is a priority. Per Sallie Mae, in 2018-2019, families covered 43 percent of college costs with savings and income. But if you’re spending your income and savings on your children, where does that leave you?
Well, older adults today are twice as likely to work beyond retirement age than similar populations were in 1985. The primary reason? They can’t afford to support themselves in retirement.
So, instead of prioritizing your children’s finances over your own, make sure to set aside your retirement fund before contributing to your child’s college savings.
Set Aside Cash for College
College costs only continue to rise, so if you hope for your offspring to attend a reputable school, you need to start saving ASAP. As of the 2016-2017 school year, the average cost of a public four-year institution was $17,327, while private schools were $44,551, per the National Center for Education Statistics (NCES).
As U.S. News highlights, a 529 college savings plan is often parents’ first choice when saving for their kids’ education. Opening an account when your child is born means you’ll have plenty of time to contribute funds to it over the years.
Plus, 529 accounts grow tax-deferred, and later withdrawals are tax-free when applied to educational expenses. When they leave for college, your child can use the account to pay for tuition, room and board, school fees, and more.
When you become a parent, it’s easy to lose sight of your financial future. At the same time, it becomes even more vital. After all, now you have both yourself and your child to worry about. Fortunately, taking these steps can help alleviate stress and help you better prepare for whatever the future holds.