Raising a family is an exciting time, but it’s also one of the most financial-straining times of your life. From daycare costs to university tuition, raising a family inevitably involves spending more money than you might be used to. In fact, the U.S. Department of Agriculture estimates that it costs roughly $233,000 to raise a child from infancy through age 17. If that isn’t enough to make your jaw drop, the same report states that cost will likely increase by 4% every year going forward. Fortunately, there are several things you can do now to help ease that financial burden when you start a family. These tips may not be able to stop time or make college free, but they can go a long way toward helping you manage your personal finances responsibly and prepare for this new stage in life.
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Estimate Your Child Care Costs
One of the biggest costs associated with starting a family is paying for child care. The U.S. Department of Health and Human Services estimates that average child care costs range from $3,900 to $11,700 per year, depending on your child’s age and where you live. If you’re lucky, you’ll be able to find a child care provider in your area that charges a reasonable rate, but those are few and far between. For example, average child care costs in New York City are roughly $18,800 per year, which is higher than the cost of tuition at Harvard University. Given the high cost of child care, it’s important to start thinking about this expense as soon as you start trying to conceive. Ideally, you should start saving money in advance so you can pay for child care without going into debt.
Don’t Forget About Retirement
This may sound like an odd thing to say at the start of a post about starting a family, but it’s an important thing to keep in mind. The cost of raising a child from birth through college is roughly $233,000, but the cost of raising a child until the age of retirement is about $1.1 million. That means you have a lot more to worry about than just your child’s expenses. However, these two events are tied together in an important way. The earlier you start saving for retirement, the less you’ll have to save overall. This is because compound interest is a powerful growth tool that can help you make your money last a lot longer. The sooner you start saving, the more time compound interest has to work in your favor. Given all this, you should try to start saving for retirement as early as you can. Ideally, you should start saving money as soon as you get a job. The sooner you start saving, the less you’ll have to save overall.
Start An Emergency Fund
Another important thing to think about is how you’ll pay for unexpected expenses. Whether you’re dealing with medical bills or having to replace the furnace, unexpected expenses can be financially crippling. Fortunately, you can get ahead of the game by starting an emergency fund. This is basically just a savings account with a different name. You can open a special savings account just for this purpose and deposit enough money to cover a few of your family’s most expensive emergencies. One thing to keep in mind when starting an emergency fund is that you shouldn’t put all your money in one place. Ideally, you should split your savings up between a few different accounts. This will help you avoid putting all your eggs in one basket and help you diversify your savings.
Negotiate Child Care Rates
Before you even start looking for a child care provider, you should negotiate the cost of their services. Child care providers often charge more than they are worth because they know they can find plenty of clients willing to pay the high price. However, you can use negotiation to drastically bring the cost of child care down. All you have to do is walk into the conversation prepared and ready to walk away if you don’t get what you want. When you go to negotiate, it’s important to be polite but firm. You don’t want to bully the other person, but you also need to be direct and clear about what you want. You should also have some basic facts about child care rates on hand before you go to negotiate. If a provider is asking for an extremely high rate, it’s helpful to know what the average child care rates are in your area.
College Isn’t Cheap, Either
While you’re thinking about your child’s future, don’t forget about their education. College isn’t cheap, but there are a few things you can do to help lower your child’s future tuition costs. One thing you can do is open a 529 savings account and start saving as early as possible. 529 savings accounts are designed to help people save money for their children’s education. Although they aren’t the only way to save for your child’s education, they are one of the most effective methods. Another thing you can do is apply for scholarships. While scholarships aren’t free money, they do reduce the amount of money you have to pay back. What’s more, there are millions of dollars in scholarship money that students are never awarded. If you can get a scholarship, you won’t have to use as much of your savings to pay for your child’s education.
Make A Financial Roadmap
Finally, you should sit down and make a financial roadmap for your family’s future. What do you want your family’s financial situation to look like in five years, 10 years, or even 15 years? What do you have to do to get there? What will your family’s day-to-day finances look like? How much will you need to earn each month? How will you spend that money? These are all important questions to ask yourself. Making a financial roadmap will help you make sure you don’t overlook anything. It will also help you figure out how to get where you want to go financially. It may not be easy, but it will be worth it when you see your family’s financial situation improve as time goes on.
Conclusion
Raising a family is an exciting but financially demanding time. Fortunately, there are several things you can do now to prepare for the costs associated with starting a family. You can start estimating your child care costs, don’t forget about retirement, start an emergency fund, negotiate child care rates, and make a financial roadmap so you can see where you want to go financially.
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