GOBankingRates surveyed 1,039 Americans aged 18 and older from across the country in November 2023, asking if they’re planning for any major financial milestones in the upcoming year. While most are looking forward to becoming a homeowner or buying a brand new car, around 11.36% of respondents said they expect to welcome a new member into their family in 2024, with 21.58% falling in the 25 to 34 age bracket.
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However, in today’s economy, bringing a child into the world requires careful budgeting, planning, and a realistic assessment of your current financial health. Before creating a nursery Pinterest board and heading to Target to shop for baby clothes, here are a few considerations to ensure you’re financially ready for a baby.
1. You’ll Need To Update Your Beneficiary Designations
“For accounts like IRAs, TOD (transfer on death) accounts, and life insurance policies, the beneficiary designations must be updated separately from your will since they override any wishes you state in a will,” said Carla Adams, founder and financial advisor at Ametrine Wealth. Adams explained that there was a famous case where a Kennedy forgot to change his IRA beneficiary designation away from his ex-wife. It went to court, and since the beneficiary designation cannot be overridden, the ex got the money.
So, to avoid accidentally disinheriting your children, make sure to update your beneficiary designations to list all of your kids if you plan on expanding your family in 2024.
2. Your Budget Will Change
In 2017, the U.S. Department of Agriculture projected that the average total expenditures on a child from birth through age 17 would be $284,594. However, due to higher inflation, it’s estimated that a middle-income married family with two kids will now need to shell out around $26,000 more to raise a child to the age of 17.
Raising a child is expensive. If you plan to expand your family in 2024, make sure you can afford to do so and won’t jeopardize your financial health. Here are some common expenses to consider when bringing a new member into the family:
Transportation: You may need to upgrade your car to a larger SUV to accommodate your growing family, which could cost you more in car payments, gas, and insurance.
Childcare And Education: The costs of daycare, preschool, music lessons, and other extracurricular activities can add up quickly, especially if you have multiple kids.
Housing: Depending on your current living situation and family size, you may need to move to a bigger place or remodel your property to accommodate your children.
Healthcare: Most kids will require plenty of medical care between birth and adulthood. Make sure to factor in health insurance premiums and out-of-pocket costs into your budget.
Food and Clothing: Baby food, diapers, and clothes are recurring expenses that could put a strain on your budget — especially in the beginning years when your child is growing rapidly.
3. Your Will Needs To Be Set Up Properly
“Your will is where you designate guardians and backup guardians for your kids if something should happen to you while your kids are still young. When planning to expand your family, this is the time to review/add/update your guardians as needed,” advised Adams.
While you can update your estate plan on your own, it’s best to work with a professional to avoid making costly mistakes. The cost of creating or updating an estate plan will vary depending on the documents you need and the lawyer you work with. Some estate lawyers charge a flat fee, and some bill by the hour, but generally, the service should cost anywhere between $500 and $3,000.
4. The Rising Future Cost of College
“College has become increasingly expensive, so it truly is never too early to start saving for your kids’ education,” said Adams. Today, according to the Education Data Initiative, the average annual cost of tuition — $30,031 — at a public four-year college is 23 times higher than tuition in 1963. With rising inflation, the Massachusetts Educational Financing Authority estimates that by 2041, you can expect to pay $40,769 annually for a national public 4-year in-state degree. And if you plan to send your kid to a private college, expect to shell out double that amount — around $93,690.
While your child can take out a federal or private student loan to help pay for their own college tuition fees, it can become a financial burden for them before they even graduate. If you have extra room in your budget, direct some of it toward saving for your children’s future college tuition.
Adams advises that you ask your friends and family to contribute directly to a 529 plan if they want to gift money to your kids. A 529 college savings plan is a tax-advantaged savings plan designed to encourage saving for future education costs, and you can open it for your child before they’re even born. Like other types of investment accounts, you can invest the money in your 529 plan in stocks, bonds, money market accounts, and other assets.
5. Emergency Funds Are a Must
When you’re single and childless, saving for a rainy day may not be your top priority. But when you become a parent, you have kids that rely on you financially. Without a cushy emergency fund, you could put your family in sticky situations when unforeseen expenses arise due to job loss, hefty medical bills or other reasons.
So, before bringing a child into the world, make sure you’ve saved around three to six months’ worth of expenses in your emergency fund to protect you and your family from any surprises that life throws your way. If you’re a single parent, consider socking away even more to ensure you’re financially stable enough to handle life’s unexpected curveballs.
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This article originally appeared on GOBankingRates.com: Expanding Your Family in 2024? 5 Financial Issues To Consider, According to Experts