Financially Prepare to Build Your Family

Oct 17, 2013 12:07:07 PM / by Jason Shaw


When you begin to think about building a family, financial planning should be a prime consideration. According to CNN Money, the average cost for a middle-income U.S. family to raise a child born in 2012 to age 18 is $241,080, based on a report released by the U.S. Department of Agriculture. The cost varies based on location and income, so for a better idea of how much it will cost to raise your children, the website offers a calculator that accounts for your individual circumstances. While these numbers may seem staggering, there are several steps you can take to make them more manageable.

Set a budget that includes an emergency fund.

If you don’t already work from a budget, start now by tracking your spending for three months to get an average monthly spending estimate. If you are expecting a new child, then add in costs for food, clothing, medical care, child care, and any other additional expenses you expect to incur after your baby arrives. Also account for any loss of income you anticipate from you or your spouse taking parental leave or staying at home for an extended period to care for your child. Look carefully at your anticipated monthly income and how you spend your money.  Consider what spending you might be able to pare down to make more room in your budget for your growing financial needs.

If you do not already have sufficient money set aside for emergencies, begin allocating a portion of your budget every month to build this fund. Investopedia recommends saving enough to cover your expenses for at least three months, although individual circumstances affect the advisable amount. For more information on emergency funds, see our previous post, “Be Prepared for the Unexpected:  Financial Planning for Emergencies.”


Reassess your life insurance needs.

If you are expecting your first child or an additional child, then your life insurance needs are changing. Consult with a financial planning professional to talk about what type and level of life insurance coverage is appropriate for your growing family. Remember that even if only one of you earns income for the family, the parent who stays at home with the children should have coverage as well. Although your family’s income would not necessarily decrease in the absence of that parent, the family’s expenses would increase at least by the additional cost of paid child care.


Make sure everyone has medical insurance.

With today’s astronomical health care costs, medical insurance is a necessity. When you have a new baby, make sure to enroll the child in your insurance plan within 30 days of birth. Failing to do so can leave you liable for all of your child’s health care expenses until your plan’s next open enrollment period. If you do not yet have medical insurance, now is the time to obtain it.  Even you do not work for an employer who offers health benefits, insurance may now be more affordable than you think. For information on plans and rates for which you may now be eligible in Iowa under Affordable Care Act, see the Health Insurance Marketplace website.


Get started on college savings.

If you can fit it into your budget, it is a good idea to start saving for your child’s higher education expenses. The earlier you start, the more time your money has to grow, and the further it will go when your little one is off to college. 529 plans are among the most popular investments for educational expenses and offer tax advantages when you use the funds appropriately. A Roth IRA is another possible source of education funding, as you may withdraw from this type of account without penalty to pay for qualified educational expenses.  This allows you the flexibility of either dipping into the account for your child’s education or keeping it there for your own retirement, based on your needs at the time.  For more information on college savings, see our previous blog post, “Iowa College Savings:  How to Save for Educational Expenses.”


Be aware of your tax advantages.

The good news about the cost of building a family is that you can offset it somewhat by taking advantage of various tax breaks. If you incur significant out-of-pocket medical costs as a result of the birth, consider whether you qualify for a medical expenses deduction. You may also be eligible for the Child and Dependent Care Credit, the Earned Income Credit, and other tax advantages. See the IRS publication, “2013 Tax Year Child-Related Tax Benefits Comparison” for detailed information. Your employer may also sponsor a dependent care or health care flexible spending account that allows you to allocate money toward these expenses while lowering your taxable income.


The financial planning professionals at Boelman Shaw Capital Partners can provide you knowledgeable assistance in selecting insurance and savings plans to serve the needs of your growing family.

Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

Topics: Financial Planning

Written by Jason Shaw