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Welcome to the Family!

Starting a family is one of the most rewarding journeys in life. However, it can also be one of the most expensive. Families must carefully budget for the future when considering everything from diapers to daycare and toys to tuition.


Daycare… plan ahead!
Step 1: Decide early what type of care the child will receive.

Childcare is one of the largest expenses related to raising a child today. Most expectant parents don't have a clear idea when it comes to planning for childcare. Unlike a 529 plan, where money is set aside for future college costs, a solid child-care plan is largely unheard of. 

There are several options to choose from when it comes to childcare. Parents have to consider the pros, cons, and cost of daycare centers, childcare homes, or in-home childcare. The cost of childcare varies based on the type of care and location. 

Minnesota is ranked the nation's second costliest state for center-based childcare last year, relative to the state's median income, according to the report by Child Care Aware of America, an advocacy group based in Washington, D.C. Placing an infant in a childcare center in Minnesota costs more than a year of state college tuition and can consume half the annual income of a typical single mother, according to a national report.

One year of infant care in a center costs $13,579 in Minnesota, while one year for a preschooler costs $10,470. In rural Minnesota, parents rely more on licensed in-home day care providers. The average annual cost of this form of care in Minnesota, $7,686 for an infant, is closer to national averages.

Although no tax-advantaged plan has yet been designed to encourage saving for future day care, would-be parents should be able to create a good childcare plan on your own: 

First, try the future childcare costs on for size, by saving the amount of childcare cost each month into a separate account - this will provide a true experience of how this cost will affect your finances. 

Second, work to set aside six months of care to help ensure the additional cost won’t add too much stress on your post-baby budget. 


Step 2: Calculate out-of-work income loss.

The next major cost for parents-to-be is lost income. Figuring out the amount to save for the period without income is a big part of the planning puzzle. If a parent is going to stay home with the baby for three months, the family would need to save for, or have budgeted ahead, to survive without that income for that time period.

Check into your employer’s policy for time off ahead of the big day. Get the specifics on whether they offer a paid leave policy. Can FMLA (Family and Medical Leave Act) time be used? What about sick days, personal days and vacation days? 


Step 3: Weigh childcare cost vs. potential income production.

Carefully laid plans can help ease some of the stress related to this life changing family transition. You may immediately conclude that you won't be able to afford staying at home, but consider the potential stay-at-home parent’s salary and balance it with the costs of childcare combined with the money you'll save just by being home.

For many parents, however, even though there is no financial advantage to working outside the home, it's an emotional and mental necessity. Parents need to weigh their needs with their child's needs and the financial implications of childcare.


"What's wrong with a little debt?"

"The biggest mistake young families make is carrying too much debt," says Stewart Welch, a certified financial planner and author of the 10 Minute Guide to Personal Finance for Newlyweds. "It happens very early on in a marriage," he says. And once couples owe several thousand dollars, they find it gets harder and harder to crawl out from under that burden.


Don’t forget the paperwork

Health Insurance - Contact your insurance provider to find out how to add your newest family member to your plan. Most insurance plans will only cover expenses for an infant that is enrolled in a plan within 30 days of being born.

Health Savings Account (HSA) - A tax-favored savings account. An HSA is beneficial during pregnancy because the cost of routine maternity coverage is fairly predictable. HSAs save you money because they allow you to put away money pre-tax. Therefore, however much money you can put into these accounts prior to undergoing a huge medical expense, the better.

Life Insurance - Figure out how much you need to pay off your mortgage and put your child through college. These estimates can be a good starting point for determining how much life insurance you need as a new parent.


A few other good basic estate planning steps for new parents include:

  • Apply for your newborn’s Social Security Card
  • Review and update beneficiaries on insurance
  • Name a person to be guardian
  • Prepare a will


Retirement is decades away, right?

Many young couples just can't get their heads around the importance of saving for retirement. While they focus on short-term goals, such as saving for a new minivan, they fail to max out their 401(k), or even contribute enough to qualify for their employer's match. That's like walking away from free money.

Couples need to understand that the longer they wait to start saving for retirement, the more they'll need to stash away later on. While someone in his 20’s can get away with investing just 10% of his income in his 401(k), someone in his 30’s will have to set aside at least 12-15% in order to fund a comfortable retirement, says Welch. 


College tuition is how much?

SmartMoney.com projects that, in 18 years, a four-year private university education will cost more than $300,000. Parents who want to help their children pay for school should start saving now. Fortunately, there are a couple of tax-friendly vehicles, including 529 plans and education savings accounts, which can help get the job done. Setting aside a little bit every month can prevent a lot of headaches later.

Source: SmartMoney.com; TheStreet.com


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