Becoming a new parent is one of life’s greatest experiences. However, if not prepared, it can take a huge financial toll.
The average cost of raising a child from birth to age 17 is $233,610, excluding college costs. Indeed, raising a child is quite expensive, which is why it’s crucial for parents to sort out their financial priorities and make sound investments as early as possible to secure their child’s future.
Below, William Montgomery Cerf provides valuable financial tips and investment strategies for new parents to better navigate parenthood and the expenses that come with it, so that they can lay a stable foundation for their children.
Top 5 Financial and Investment Moves
Invest in Insurance Plans
One of the most important investments that new parents can make is life insurance.
While health insurance is essential, having a good life insurance policy in place also helps a growing family by ensuring that financial resources are available to them in case either of the parents passes away.
In case of the unexpected death of an insured parent, the payout from a policy can be used for school tuition, mortgage, or savings, which is especially important when the children are still young.
Build an Emergency Fund
Speaking of unexpected incidents, another sound investment for new parents is the emergency fund. If an emergency fund is already in place, consider increasing it since having children raises the stakes for rainy-day planning.
An emergency fund is a safety net to cover at least 6 months of living expenses in the event of unemployment, medical emergencies, and any other unforeseen events. It also ensures that a household is able to run smoothly during a period when there is little to no income coming in.
Allocate a Bigger Household Budget
The average childcare cost is over $10,000 every year, so that’s roughly how much new parents should add to their yearly household budget. This covers recurring expenses like formula, diapers, wipes, clothing, feeding supplies, and doctor visits as well as one-time investments like strollers and car seats.
Utilize Tax Breaks
With all the expenses that come with a child, it’s ideal to take advantage of tax breaks. If parents meet the criteria, they will be eligible for a tax break – the Child and Dependent Care Credit will cover as much as 35% of childcare expenses, depending on the parent’s income.
For one child, the maximum credit is $1,050 and for two children it’s $2,100.
Start Saving for College Tuition
We all know how expensive a college education is, so the earlier parents save for their child’s college tuition, the better off they’ll be.
A baby born in 2023 will be off to college in 17 years, and the projected amount of expenses to cover four years of tuition and other fees is around $242,000 at a public university.
Parents who make informed financial decisions and sound investments right now can ensuer a stable and prosperous future for their children – it may be a long and hard journey, but the rewards in the end will be more than worth it.
