Having a baby is one of life’s most rewarding experiences, but it doesn’t come for free. According to a recent USDA estimate, it costs close to $300,000 to raise a child to age 18 in the United States.
Therefore, it makes sense to get your money in order before you conceive. Here are five tips on how to financially prepare for a baby so that you don’t find yourself scrambling once you have a mouth or two to feed.
1. Pad That Emergency Fund
What would you do if you lost your job tomorrow? It’s one thing when you only have yourself to look out for — it’s quite another when a tiny living soul also depends on you for everything.
Most experts recommend keeping a reserve of three to six months’ worth of salary set aside in a liquid emergency fund. However, when you have an infant on the way, you might want to sock away a little bit more. Wage stagnation means that a job loss today can mean moving several rungs down the salary ladder, and you could need the extra to help cover bills even if you find work right away.
2. Create Residuals
Given the reality of wage stagnation, it might be unfeasible to rely on labor alone to produce your income. If prices keep outstripping your annual raise, you’ll find yourself underwater even if you make wise choices.
Look into ways to create a residual income stream. If you have property, such as an outbuilding or even an RV that you aren’t regularly using, consider renting it out as an Airbnb.
If your assets consist of yourself and your ingenuity, you might have to get a little more creative. Do you have a hobby such as knitting that you could transform into an Etsy shop? Are you a subject-matter expert who could start a blog on a topic that fascinates you?
Legitimate side hustles are rarely get-rich-quick schemes. They often entail considerable work — but once you establish a product or service that you can maintain with a realistic weekly time commitment, you can kick back and let the residual income roll in while you sleep.
Therefore, it’s never too early to get started on establishing that side income when it comes to how to financially prepare for a baby. After all, you don’t want to begin dreading your once-favorite hobby if you have to rush, making it yet another item on your to-do list.
3. Get Over Your Fear of Investing
Your average savings account pays less than 1% in interest. It doesn’t take much mathematical wizardry to realize that it won’t cut the mustard when it comes to inflation.
Therefore, you have to get over your fear of investing. Historically, the stock market does a much better job of keeping up with the cost-of-living, and your gains should outpace losses over the long-term if you diversify your portfolio.
However, if you don’t want to learn about stocks, bonds and REITs, consider investing in a mutual fund. These instruments diversify your portfolio for you, and you can even select versions that support the same causes you do.
4. Buy a House
There’s bad news if you rent — healthcare and education aren’t the only two costs inflating far more quickly than the average wage. Rental prices continue to skyrocket in many areas, meaning you get less home for your buck every time you move. If you want to grow your family, that’s a dangerous dynamic.
Therefore, it’s best if you can buy a home as you financially prepare for a baby. Each monthly mortgage payment you make creates equity that you can borrow against in case of future financial crises. Plus, eventually, you pay off your home and eliminate what for many is your most costly monthly bill, and you have something that you can pass on to your children.
5. Cover the Basics
Finally, food and shelter aren’t enough to keep your baby healthy. If you want them to thrive, you need health care coverage for both you and them. It can cost anywhere from $30,000 to $50,000 just to give birth without insurance, and that’s without complications.
What if you lost your ability to work? The time to score a disability policy is before you need it, not after you get sick. Once you have a diagnosed medical condition, you won’t be able to find coverage for the very disorder most likely to steal your ability to generate income minus a rider excluding it.
Finally, you’ll need the fun stuff — all those baby supplies. While most parents delight in decorating the nursery and stocking the toybox, you nevertheless need to set money aside for things like diapers and bottles.
Financially Prepare for Your Baby With These Five Tips
Having a child is rewarding yet costly. Learn how to financially prepare for your baby with these five tips.