The financial demands presented by a new addition to the family can overwhelm new parents. Costs for toys, diapers, clothing and medical expenses mount up quickly. Factor in the cost of college 18 years down the line, and it is no wonder new parents panic. Read on for tips to alleviate the worry and costs all new parents face.
1. Consider whether both parents will work outside the house. If one decides to stay home, use pregnancy time to try living on one income, and put the rest in your savings account.
2. Make up a budget if you do not already have one. Keep track of all your expenditures for one month, and decide where to make changes.
3. Lower your debt. Increase the amount you put toward credit card payments by scaling back on eating out and entertainment expenditures.
4. Create an emergency fund. If you cannot sock away three to six months’ worth of living expenses, set aside what you can.
5. Avoid expensive baby boutiques. A small indulgence now and again is fine, but does a 3-month-old really need rhinestone-encrusted shoes for $100? Before you even set up the nursery, devise a spending plan. Shop at consignment stores and yard sales, and accept hand-me-downs.
6. Make sure you have enough life insurance. Parents should seek at least five times their earnings in addition to the total amount of household debt plus college tuition. Most planners recommend term insurance for new parents. The term should last until dependents are finished college and no longer financially dependent on parents.
7. Contribute at least 10 percent to your retirement savings plan before you save for your child’s college tuition. While your child can borrow money for college, there are no loans or scholarships available for retirement. Focusing only on your child’s college tuition will leave you nothing for retirement, and you may have to rely on your child for support in old age.
8. Set up an automatic contribution for a 529 college savings plan. You can put after-tax money aside in an investment account and allow it to grow tax-deferred. The money is tax-free when you withdraw it for college expenses.
9. Buy a home in an area with a great school district. Not only will your child benefit from attending good schools, your house should appreciate over time.
10. Make a will. You should designate a guardian for your child in the event of the premature death of both parents since you do not want the court to make this decision for you. Even if you intend your child to inherit all your assets, you need to designate someone to handle your finances in the event of your death.