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What should I do if I'm starting a family?
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There's no question that having a child is one of the most rewarding--and challenging--events of a lifetime. And it's likely to be the most expensive. Estimates for the cost of raising a child to adulthood range from several hundred thousand dollars to $1.5 million! It's daunting, to be sure, but millions of others manage, and so can you.
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You'll first need to be ready to deal with the startup costs of a child--stuff like cribs, clothes, toys, and formula. If you're lucky, you'll get some help from friends and relatives, but that won't cover everything. If you've thought about making a budget in the past but dropped the ball, now is the time to start one. You'll want to know exactly how much you have coming in and where you can cut costs.
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Now's also the time to think about your options for day care. Do you want a day-care center, a nanny at your home, or something in between? Another question is whether one spouse will leave work or drop to part-time. Losing one salary can seem like a huge sacrifice, but the costs of day care, transportation, work clothes, lunches out, and taxes can trim that difference fast.
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Don't forget about the long-term costs of your child, college being the biggest one. Most advisors recommend taking care of your own retirement first--that means stash as much as possible in your employer-sponsored savings plan. If you've got more, or your child receives gifts, look to Education IRAs, 529 tuition plans (a new, tax-deferred vehicle for college investing), or other tax-advantaged options before taxable investments. (You can check out the future cost of college with this calculator.)
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Finally, you need to provide a safety net for your new little bundle of joy. Start by building up a cash reserve. In addition, purchase adequate life insurance for both you and your spouse. Last, but not least, draft a will or update your old one. It's crucial that in the event of a disaster, all your contingency plans are in order.
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