Guest post by Sara Bailey The key to a strong financial future includes a great deal of budgeting, short- and- long-term planning, and saving as much money as possible along the way. When you’re raising a family, however, saving money for the future isn’t quite so simple—especially when you account for the high cost of raising a child. Here’s how you can tackle those day-to-day expenses and still set your family up for a brilliant financial future.
Facts and Figures
There are plenty of expenses that go into raising children—childcare, education, food, housing, medical coverage, and extracurricular activities are just a handful of common costs. But what does all that add up to?
According to the United States Department of Agriculture (USDA), you can expect to spend anywhere from $233,610 to $284,570 on raising a child—or more depending on where you live. Since these estimates do not include the cost of college tuition, you’ll need to factor these amounts in as well if you plan to fund your child’s post-secondary education.
While a variety of college savings plans are available to assist you in saving for your child’s education—including 529 plans, Roth IRAs, and Coverdell education savings accounts—it’s important to think about your own financial future as well, especially your short- and- long-term goals. To build a comfortable financial future for you and your family, you need to start with a basic budget.
Create a Post-Baby Budget
Even if you followed a budget before you started raising a family, chances are your finances have changed quite a bit since you welcomed a child into your life. As such, it’s important to modify your post-baby budget to factor in any childcare, health insurance, medical coverage, education expenses, and housing costs. Track expenses carefully, and use tools to make staying on target a breeze.
If your budget allows room for additional savings or spending each month, you can use that money to build an emergency fund for your family. Some experts say that an emergency fund should include enough money to cover three to six months of living expenses, while others recommend saving as much as 12 months of expenses.
Save for a Down Payment on a Home
If you plan on buying a home for your growing family, your post-baby budget can also help you to determine how much you can afford to set aside for a down payment. While QuickenLoans notes USDA and VA home loans don’t require any money down, FHA loans and conventional mortgages do. Depending on the type of mortgage you qualify for, down payment requirements on FHA and conventional loans typically range from 3.5 to 20 percent of the home’s purchase price.
However, a 20 percent down payment is ideal in many cases—especially if you’re aiming to reduce the amount of your monthly mortgage payments, lower your interest rate, and avoid paying for private mortgage insurance (PMI). Plus, earnest money deposits that range from one to three percent of a home’s sale price are also ideal—especially in a competitive market.
Draft an Estate Plan
In addition to creating a budget, building an emergency fund, and saving for a down payment on a home for your family, it’s important to draft an estate plan that provides your children with the protection they need in the event of your death. When creating your estate plan, you’ll need to draft a will, update the beneficiaries on your retirement plans and bank accounts, and make note of your final wishes—such as whether you’d like to be buried or cremated when you die.
As part of the estate planning process, it’s also important to purchase life insurance if you haven’t already done so. Whether you purchase term, whole, or universal life insurance coverage, the policy will protect your children in the event of your death. In some cases, you may choose to purchase burial insurance as well.
With everything that goes into raising children and keeping them safe, clothed, housed, and fed, financial planning may seem like the least important responsibility of taking on the role of a parent. Set a smart budget that will help realize your goals. The more planning you do today, the more secure your family’s financial future will be.