Starting a family is a major milestone in any person’s life. It is an exciting time with filled with anticipation.
However, it is also a time where your finances may come under some serious pressure. The expenses associated with a new child can be high and you will face these on an ongoing basis for at least 18 years!
Help is at hand. This short guide will provide you with the information you need to plan for this arrival financially, so you can spend your time enjoying this wonderful period in your life.
The guide helps you plan for the short, medium and long term adjusting the actions as your child gets older and their needs change.
Here we go!
Short Term Actions
- Starting out
In the short term the biggest costs you will face are medical expenses. How this affects you depends on the type of medical insurance you have. You may be paying for this yourself or it may be provided to you by your employer.
Before starting a family, it is important to review the schedule of benefits attached to your current medical insurance cover. You need to ask yourself is this enough? Will this cover everything that’s required? It can be hard to understand what some of the benefits relate too.
If you don’t understand ask!
At this point you may find out that the benefits are not as good as you thought. This is the time to adjust your plan to get the care you feel you need.
In some cases, you may not have medical insurance. In most places this means you are faced with a choice between public or private health care. Depending on where to live this can be an easy or a hard choice.
The question you need to ask your self is how good is the local public hospital, in some cases is it may be as good or even better than the private options.
If not, get a detailed quote from your local private hospital as to how much medical care might cost. Consider as many eventualities as you can. Once you have this quote adjust your household budget to allow you to save for this.
Don’t forget
You will also have some other additional costs such as clothing and a crib to factor in too. Don’t leave these out . They can be large expenses too. When you are considering these expenses ask yourself do you really need to buy everything new. Would a used option or some hand me downs be enough? This option can really help you at this expensive time.
Medium Term Actions
- Prepare for Emergencies
In the medium term you will require a more detailed financial plan. It is important that you try to build up an emergency fund now that you have someone depending on you for their basic needs.
In order to do this, you will require a household budget. If you have not prepared one before, don’t worry, help is at hand. There are a variety of free articles out there which can help you with this.
Once you have a household budget and have begun to set aside an emergency fund, its important that the fund works as hard as you do. You have a number of options. You can leave the fund in a deposit account earning very little interest but with very little risk of losing any of your funds.
If you don’t wish to take on any risk and want to have the cash on hand, think about taking out a deposit account that requires some notice to make a withdrawal.
These are available for terms as short as seven days or as long as one year! The interest you receive will be higher and you will have the same low risk. You will have to plan carefully though.
Perhaps your comfortable with a little risk. If so consider investing some of your emergency fund in a stock market linked product. The returns you can receive are potentially much higher but the risk of loss of some of your funds is also much greater.
When making this choice it is important to get professional advice.
- Let’s talk insurance
Whilst you can build up an emergency fund to help with the unexpected, what happens if the unexpected happens to you.
Now that you have dependents it may be time to consider some additional insurance. There are two main types to consider, life insurance and critical illness cover.
Life insurance provides your dependents with a lump sum payment in the event of your death. It’s a very difficult topic to consider and talk about but one that needs to be addressed. How much this form of insurance will cost you depends on your age and lifestyle primarily.
There will still be some variation between insurance providers so as with all financial products, Shop around! When comparing different quotes make sure that each company is providing the same level of benefit.
Company A may be cheaper than Company B but it may be a completely different product. Use the household budget you have prepared to estimate how much cover you may need.
But wait there is more!
- Critical illness
Over the course of your child’s life you may fall ill. This could be so severe that you may not be able to work. Even a very large emergency fund may not be enough to support you and your new family through this difficult time.
At this point you should consider another insurance product, critical illness cover. This product provides you with cover in the event that you fall ill.
This cover needs to be carefully considered. The benefits can vary widely between providers and the process to qualify for the benefits under the plan can be hard to understand.
This is a form of insurance cover that requires professional advice. Make sure you get independent advice when taking out this product and review the benefits and qualification criteria very carefully. You may think you are covered but it is important to check that you really are.
Other important things to look at include how long the benefits will last for and what you will do when they run out. These things require careful financial planning.
- Child care
One of the largest costs you will face in the medium term is child care. This can be a huge expense unless you live in a European country that provides it for free. Unfortunately, most of us don’t so this expense requires a lot of preparation.
The first thing to ask is can a family member help. If so this can reduce your costs substantially and also provide you with much greater flexibility. Private childcare operators have business hours like any other company and these may not always suit your lifestyle.
If this is not an option, you are faced with choosing a private child care provider. Cost is probably not going to be your main concern. But you will still factor it in. On the surface all providers may appear to offer the same or similar service, but this may not be the case.
Ask other parents in your locality for advice as to what is and what is not included. What other extra costs could you be expected to handle. This will help you adjust your budget accordingly.
This is important!
Negotiate. As with any other service it is important to try to negotiate on price. Think of this as purchasing any other important long term service. From the providers point of view they are trying to sign up a potentially good long term client so they may be willing to negotiate.
Don’t push too hard however as you may find in the long term that you are subject to large unexpected price increases as demand for the service improves.
- Time out
When working out how much child care will costs you may come to the conclusion that is actually cheaper for one parent to stay at home.
This is a really difficult decision to make but it may be sensible financially. In the short term it involves understanding whether the cost of the childcare payments plus the cost of commuting to work and other expenses is greater than both of the salaries being earned.
But wait!
This choice may seem like a good idea today but it may not make sense in the long term. Leaving the workforce now can in some cases affect your long term earnings. You may not get that promotion or you may have to re-skill as the industry you left has changed by the time you have come back.
When making this decision it is important to look at long term earning power. Given how your career is going how much could you be earning in two to five years. Ask yourself would the decision still make sense then? If not it may be time to consider.
There are other options available too. There may be no need to leave the workforce completely. Taking a part time role can still make financial sense. You may even be able to work from home.
Today there is even the option to take on some freelance work where you can work in the comfort of your own home to your own schedule. This helps you cut costs, maintain some earning power whilst still keeping your skills up to date. This is a great potential option.
Long term Actions
- Growing up
As you know, as your child gets older the costs you face will increase and change dramatically. At one point you may even have to make college tuition payments. This can be a huge expense and requires careful financial planning.
In order to plan for the long term you require a long term budget. It is not realistic to prepare a budget 18 years in advance but what is realistic is to constantly review the budget you have on at least an annual basis with a major review every three years.
The first thing to do is to write down the major milestone events in your child’s life. This will include things like starting Elementary school, High school and other major events. When one of these events is approaching you need to estimate how much they are going to cost.
This will then need to be included in your budget. When doing this do not forget that your income will probably rise over this period so make sure you include this in your calculation. Try to be as conservative as possible though.
Once you have this written down you will be ready to plan for what may happen in the long term.
- Help is available
Over the next 18 years you make experience hard times financially. If you are lucky enough to have a supportive family make sure you make them aware of these things when they happen.
They may be able to provide you with all kinds of support including financial support. A burden shared is a burden halved!
When times get tough you may be tempted to take out loans and use other credit facilities to cover any gaps. You should try to avoid this at all costs. This is a very expensive way to cover any gaps which may arise.
The interest on some products, such as pay day loans, can be huge. You could end up in a long term debt trap that you may never get out of. In all cases it is always best to try to cut your budget as much as possible to avoid loans.
Drive a smaller care, live in a cheaper area and by avoiding loans the interest payments stay in your pocket giving you more to live your debt free life with.
If you are reading this you may be about to enter a wonderful period in your life. Hopefully this guide provides you with the help you need to enable you to enjoy it that little bit more.
It is all about budgeting and long term financial planning. Even doing a little of this will make a huge difference.
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