Your $300,000 Bundle of Joy


The cost of raising a child is estimated to be nearly $300,000, not including college.1 Being a parent is the challenge of a lifetime, with all the rewards and frustrations that attend such challenges.

If you are a parent of a new baby, you can take several important steps now to meet the extraordinary financial challenge of raising your child.

Before the baby is born, begin the paperwork to get your child added to your employer’s health insurance plan; if you and your spouse have separate plans, determine which offers more favorable dependent coverage. Ask your employer if it offers a dependent care account. You may be eligible to put up to $5,000 in pretax income if both you and your spouse (or a single parent) are employed or students. The money may be used to pay for qualified childcare expenses and, depending on your tax bracket, it could save you up to $2,000 per year.

Because a child comes with these enormous financial obligations, you may want to reevaluate your life insurance coverage. The loss of income due to the death of a parent can have serious financial consequences to your family, so it pays to increase your protection.

Make sure you have an up-to-date will, that, among other things, names a guardian for your child(ren). Consider establishing testamentary trusts through your will to provide for their future care.

Watch your spending. Parents often operate on inertia when it comes to spending. You have new expenses (and potentially reduced income if one spouse stops working or reduces hours), so revisit your spending habits and look for ways to better budget the household income.

Parents will be inclined to want to move to where there is a good school system. That may come with higher housing costs. Just remember, a new child is years away from entering school, so you have time. The timing of any such decision to move, of course, will also depend on the price trends in your local market.

You will also want to begin saving for your child’s college education. Starting early is smart, but keep two things in mind. Don’t feel the pressure to save the entire amount of what those calculators tell you. Getting started is the most important thing; you can always increase savings as your income grows.

The second caveat is not to abandon your saving for retirement. Remember, you can always borrow for college, but you will not be able to borrow for retirement.

Lastly, don’t forget about yourselves. Be sure you budget for a “date night” every now and again because you deserve it and your relationship will be happier for it.