Child Care Costs
Child care is expensive, and if you plan to work after your child is born, you will need to budget for child care costs in advance. In 43 states and the District of Columbia, the average price of center-based care for infants exceeds 10% of the state’s median income for married couples with children, according to a 2019 report by Child Care Aware of America. Whether you plan to allow one parent to stay home or work full-time, you will need to adjust your budget accordingly.
Healthcare Costs
Many health insurance plans cover children’s visits under the Affordable Care Act; however, children are prone to childhood illnesses, and it is important to set aside additional funds for unexpected doctor visits and medications. If your children have allergies, you may need to spend more on specialty formula or require additional services or treatments in the case of complications. Building a reserve fund, in addition to an emergency fund, can make managing these expenses easier in the long run.
Insurance Changes
Adding your child to your health insurance policy is typically the most expensive option when it comes to insurance. You have 30 days from your child’s birth date to do this, ensuring coverage for everything from birth. For your first or second child, the increased monthly premiums often reduce the net pay you receive. You can estimate your new salary using an online calculator to help you adjust your budget accordingly.
College Savings
You should start saving money to cover college costs as soon as you decide to have a child. According to the Federal Reserve, 42% of those attending college carry some debt from their education (as of May 2018), and in recent years, student loan debt has become the second highest category of consumer debt. Getting out of debt may be a priority for a short time, but saving for college through a 529 plan or a similar vehicle can help your child start off stable without accumulating too much debt. The earlier you start saving, the better the outcome for your child.
Life Insurance Needs
Once you start a family, it is important to ensure that you have life insurance. Both parents should have a life insurance policy to help cover expenses if one parent unexpectedly passes away. Additionally, some life insurance policies are sufficient to cover college costs. Even if you are not working, you should consider adding a life insurance policy to help cover the additional costs of child care.
Tax Changes
There are many tax benefits to having a child. When tax season arrives, you can claim an additional person on your taxes, and you may be able to deduct part of your expenses from the child tax credit and child and dependent care credit. Note: When you have a child, you may want to change the amount of tax withheld from your paycheck. Use the IRS withholding calculator to determine if you need to change the amount being deducted currently or talk to an accountant.
Adjusting Your Flexible Spending Account
If your job offers a flexible spending account, you should take advantage of it, as you can deduct extra amounts to cover child care costs. Both you and your spouse can do this at work, and it will make some costs come out pre-tax, reducing your taxable income.
Housing Changes
With more children comes the need for more space. Plan ahead before children arrive to determine the additional costs associated with having a child and how much you can afford for a new home. Once your children are school-aged, you may want to move to an area with a good school district, which often means living in a more expensive area.
Changes
In the Budget
Your budget may change significantly when you plan for additional monthly costs such as baby food, formula, and diapers, so it’s important to plan ahead. Funding in other categories may also need to increase, such as clothing or entertainment costs, as well as educational resources like a tutor or music lessons. Taking the time to start planning for these things now will make it easier to adapt as your children grow. Note: There are various ways to distribute your budget accordingly. One highly recommended method is the 50/30/20 rule, or you may also consider using digital apps to track your spending habits.
Ongoing Lifestyle Changes
There may be additional costs and lifestyle changes you will need to consider, such as taking vacations or the amount of time you spend on your hobbies. Some expenses may increase over time due to having an additional person, for example, buying an extra plane ticket when traveling on vacation or extra food when dining out. These changes may be minor at first, but it’s important to plan for them, as they can add up and have a significant impact.
Source: https://www.thebalancemoney.com/how-your-budget-changes-when-starting-a-family-4153834
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