Kids Planning
Planning for kids from a financial perspective involves preparing for the costs of raising a child and securing their future needs. Here are key financial steps to consider:
1. Estimate the Costs of Raising a Child
Day-to-Day Expenses: The USDA estimates the average cost of raising a child to age 18 is around $233,000, which includes food, housing, and education but not college.
HUD. It's essential to budget for clothing, food, daycare, and extra-curricular activities.
Health Insurance: Ensure your family is covered under a comprehensive health insurance plan, and anticipate costs like doctor visits, prescriptions, and emergency care.
2. Start a College Fund
529 Plan: This tax-advantaged savings plan allows you to save for future educational expenses. Earnings grow tax-free, and withdrawals for qualifying educational expenses aren’t taxed.
Coverdell ESA: Another education savings option, though it has a contribution limit of $2,000 per year.
3. Create or Adjust Your Emergency Fund
3-6 Months of Expenses: Make sure you have enough savings to cover living expenses for 3-6 months. Once you have children, emergency needs (like medical bills or job loss) become more significant.
4. Life Insurance
Term Life Insurance: This is a relatively inexpensive way to ensure that your family is financially supported in case something happens to you. The death benefit can cover expenses like mortgage payments, education, and general living costs for your child.
Consider Both Parents: Even if one parent doesn’t work outside the home, life insurance for both is crucial. The cost of replacing childcare, household management, or other contributions can be significant.
5. Update or Create a Will
Guardianship: Ensure that you have legal guardianship plans in place for your children. This protects their future in case something happens to you.
Trusts: Consider setting up a trust that can manage assets for your child’s benefit, especially if they are too young to handle a lump sum inheritance.
6. Tax Benefits
Child Tax Credit: You may be eligible for a credit of up to $2,000 per child, which helps offset the cost of raising children.
Dependent Care Credit: If you pay for childcare so you can work, you might be able to claim a credit for those expenses.
7. Childcare and Education Costs
Daycare/Preschool: These can be major costs, ranging from $9,000 to $22,000 annually depending on location. It’s critical to plan early.
Private School: If you plan to send your child to private school, budget for tuition and associated expenses.
8. Start Saving for Major Milestones
Weddings and Other Life Events: If you want to contribute to large future expenses, like weddings or down payments on homes, start setting aside money early in a separate savings or investment account.
9. Budget Adjustments
Reduced Income: If one parent plans to stay home or reduce work hours, adjust your budget to reflect any potential loss of income. Prioritize essential savings, such as retirement and emergency funds, while adjusting discretionary spending.
10. Education on Money Management
Teach Financial Literacy: As your child grows, teaching them about saving, budgeting, and investing will set them up for long-term financial success. Encourage good financial habits early on.
Planning financially for children requires a mix of short-term and long-term strategies, from budgeting for immediate childcare expenses to saving for their college education and future milestones.