New baby on the way? Congratulations! Now brace yourself: According to the U.S. Department of Agriculture, a middle-income American family with a baby born in 2013 will spend $245,000 to raise that child to age 18. Figures from the USDA account for the cost of food, clothing, and other necessities, and this is just for one child. Even scarier: this doesn’t even include college costs, or projected inflation.
The value of a human life will always be more than any price you can put on it. That said, having a baby is a financial decision. It’s critical to plan accordingly.
If youÂ are considering starting a family, you need to be serious about financial planning. Begin with a well-thought out budget and a game plan for how you will approach spending, saving, and investing decisions. That includes plans to save for college tuition before a new baby arrives. This way, you are more likely to be prepared for that bundle of joy, as well as the price tag that comes with raising him or her. Here are other steps you should consider when preparing for a new baby:
1. Get professional help.
Before you make any major financial decisions or purchases in anticipation of your new baby’s arrival, seek out qualified professionals to help. ConsiderÂ both short- and long-term goals, based on your specific situation. Secure the help of a certified financial planner, a tax expert, and an estate planning attorney to help to develop the best plans, put them in place and adjust them as circumstances change over time. Remember, you still need to maintain emergency savings, fund your retirement, and serve other financial priorities. In fact, these become more important, not less, when preparing for a new baby.
2. Think beyond your new baby’s due date.
You need to get an idea of the annual costs of raising your child. Use tools offered by organizations such as the USDA Cost of Raising A Child CalculatorÂ to get an estimate of the incremental costs of parenthood in categories, such as housing, clothing, and transportation. Then, create a budget reflecting these costs.
3. Plan and budget for parental leave from work.
One of the first appointments that you should make once you decide to have a baby, or discover that one is on the way, is with your employer’s human resources department. Get up to speed on maternity/paternity leave policies. Also, be clear on benefits and any changes you need to make or plan for. Budgeting should be for three stages: pre-, during, and post-parental leave. Don’t forget to order a birth certificate and new Social Security card once your bundle of joy arrives.
4. Determine what insurance coverage you will need.
Do your research, starting with health insurance. Make sure your child is covered on your policy from his or her date of birth. Life insurance will ensure that your child is provided for if you or your spouse or partner dies. Lastly, disability insurance will help to cover the loss of income in the event of an illness or accident that prevents you from working and providing for your family.
5. Make sure that estate planning documents, including a will, are in place or up-to-date. Â
Even if you have very little in the way of assets, you need a will to name a guardian for your new babyÂ should anything happen to you and your spouse or partner. Additionally, you may want to set up a trust, either separately or as part of the will, to hold these assets at least until the child is of legal age. Proper estate planning and/or insurance is especially important for protecting the interests of children in blended families, or who have siblings from other marriages or relationships of their parents.
6. Review and revise all beneficiary designations to include your new baby.
Often, you will want your child to be a contingent beneficiary on life insurance or retirement accounts, naming your spouse or the child’s guardian as the primary beneficiary. But because a child cannot legally own assets until he or she reaches either 18 or 21 (depending on your state), you will likely want to name the trust as part of your estate plan.
7. Set up a custodial account, in addition to a trust account for your new baby. Â
This account can be used to hold assets for the benefit of your child, as well as be named as a beneficiary of a life insurance policy or retirement plan. It will also serve as a great holding place for any money gifts from grandparents and other family members or friends. There are also tax advantages to this type of account.
Black EnterpriseÂ Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder ofÂ Grown Zone,Â a relationship educationÂ initiative focused on personalÂ growth and healthy decision-making. Follow him on Twitter atÂ @AlfredEdmondJr.Â