Bringing up baby is expensive - an average cost of $245,340 by high school graduation, according to the latest annual estimate from the U.S. Agriculture Department.
That figure is just one reason why prospective parents are advised to consider parallel financial planning for child-based expenses and retirement. The key is to start preparing as early as possible. As adults start families later in life, financial needs for childcare, college saving and retirement seem on a tighter collision course than ever before. Here are some steps to follow if you're planning on having, or currently expecting, a child.
Think through the biggest issues first. For prospective couples or single parents, any discussion of family should begin with the ultimate pros and cons list of what starting a family might mean for personal, lifestyle and career success. In short, the question "Do we want kids?" should come before "Can we afford kids?"
Get a clear picture of your financial security. Once family goals are settled, it's wise to evaluate where current finances stand. Many couples are advised to have a thorough money talk before they wed; resetting that talk to discuss financing a family might be worthwhile. Couples and single parents can benefit from a complete and transparent financial discussion before a pregnancy, adoption proceedings or fertility treatments start.
Take advantage of qualified financial and tax advice to fit specific circumstances. Raising a family is an enormous job and there often isn't enough time for hands-on financial management. Seeking qualified financial advice early is best. Consult trusted family and friends for referrals to qualified financial planning and tax experts. Also search the Internal Revenue Service (IRS) website on how to handle and potentially deduct certain costs related to adoption or fertility treatments.
Research thoroughly and bookmark resources before starting a family. The IRS website also features an omnibus summary of tax issues for parents, which can guide overall planning. New authors and bloggers emerge daily and cover numerous aspects of parenting, so keep searching and getting advice from friends, relatives and colleagues with families of their own.
Check your benefits. If you are employed, evaluate everything from your health benefits (including potential maternity and paternity leave and specialized fertility benefits) to how your workplace's family policies line up against the provisions of the federal Family and Medical Leave Act. Working, insured partners and spouses should evaluate who has the best coverage to insure children.
Start planning for childcare expenses as soon as possible. Full- or part-time childcare services for working parents can be surprisingly expensive and difficult to obtain depending on location. In 2015, the White House reported that the average cost of full-time care for an infant was about $10,000 a year, and some state-by-state estimates are significantly higher. For peace of mind and affordability, begin checking childcare resources well before your child arrives. Also, consider talking to a qualified tax advisor on whether it is more advantageous to claim the Child and Dependent Care Credit on your taxes or pay childcare expenses from a Flexible Spending Account at work.
Discuss financial support from family and friends. Depending on your financial circumstances and the way you manage the relationship, loved ones can lend financial assistance to a new family in a variety of ways. Start with the basics like babysitting, sharing hand-me-down clothing, toys and other child-related equipment, saving coupons and offering recommendations and tips on every child-rearing subject from discipline to education. For those who want to make an additional commitment in dollars, friends and family members may also contribute to a child's future Coverdell Education Savings Account, 529 college savings plan or gift certain cash or assets to the child subject to IRS rules. Also, under certain circumstances, anyone can directly pay medical expenses in full for someone they do not claim as a dependent. If friends or family members offer to help, encourage them to evaluate such decisions with qualified financial and tax experts.
Consider every possible medical expense. Evaluate every out-of-pocket cost you might encounter before and after your child arrives. Healthcare insurance offerings and deductibles should be scrutinized regarding coverage for maternity, fertility and any child-specific procedures or treatments. Ask about coverage for high-risk pregnancies or deliveries. Also keep in mind that deductibles can run into the thousands of dollars on many family policies. Consult a tax advisor about opening a Health Savings Account to pay any medical costs that might not be covered by insurance.
Become a dedicated saver. Saving for retirement and a child's education expenses is a tough balancing act for most parents, so consider that every dollar you save can support these critical goals. Work with qualified experts and loved ones to gather smart ideas on spending and saving. In short, become an expert on what to buy on sale, in bulk, used or only when there's an immediate need.
Bottom line: Starting a family takes significant financial planning. Start investigating costs as early as possible and remember that qualified advice always helps.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney