Financial implications of having children, or more specifically, having your first child is what many do not take seriously before signing on to become parents. While becoming a parent is very exciting and fulfilling, it’s also significantly life changing in many ways… but here, so this will focus on the financial aspects of becoming a parent.
Well, if you’re a two-income couples, one of the first changes you might face is a straight reduction in your wife’s income should she go on short-term or extended maternity leave. This, of course, also depends on her employment status and the pregnancy-related benefits she receives… but for the most part, young expecting couples are faced with a sudden loss of income of the mother.
So make sure, as soon as you find out you’re going to become parents, you use the remaining seven or eight months before the baby’s birth to set your finances in order and your lifestyle to accommodate a new person in your household and a drop in take-home pay. In instances where the mother is not working, adjust your lifestyle for the added expenses of a new born.
And, ideally, plan ahead as soon as you are married or in a relationship where the two of you would want children.
Also check with HR on your maternity benefits and make full use of them on things like your insurance co-pays… treat a pregnancy like any other medical condition and plan ahead for necessary out-of-pocket expenses.
In addition to loss of income, a baby comes with multiple expenses such as an added healthcare deduction from your salary, out-of-pocket hospital expenses for the mother and child, temporary periods of absence for the father that could also result in reduced pay close to the time of delivery and, of course, money for the baby’s clothes, toys, cot, car seat and more. You’ve all sort of expenses when a baby is born so it’s best that you be prepared.
A new baby is magnificent experience but I do want to help you avoid some common mistakes and lot of excited parents tend to get carried away and buy expensive cribs, expensive clothes and so on… driven by a noble thought where they want to give their child the best that they can afford… but, frankly, This is also a good time to look for used items – you can get excellent quality children’s items that other kids have simply outgrown.
Reduce your expenses by getting necessary and basic items. Instead, invest in things that matter, such as good quality baby nappy, good quality and healthy baby food and formula, a good car seat.
As soon as you have a baby, you can also start socking away for baby’s education. Plans that let you invest today so the money grows tax-free and can be withdrawn tax-free provided funds are used for qualified educational expenses such as tuition, educational supplies, computers and Internet access, room and board, etc.
Invest the money in higher yielding securities such as stocks at first, then gradually shift the allocation to bonds or any other securities as your child reaches an age where funds need to be withdrawn. You’ll be amazed at how effective these plans are in reducing future education, related expenses.
And finally, don’t ignore your own retirement. And through it all, make sure you don’t ignore contributions to your own retirement savings. If circumstances or financial constraints make money tight, reduce your contributions to keep the continuity and the discipline, and actively streamline your lifestyle preferences to your new circumstances, to the point where you still manage to save enough for your retireme
Source: BusinessDay
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