Money Matters – Money Goals For Families: Baby Makes 3
BOSTON (CBS) – Where there were two there now could be three or four or more if you used fertility drugs.
What does having a baby do to your goals and dreams? Instead of a Prius you are thinking van; instead of a trip to Aruba you are thinking Disney World. Instead of retirement planning you begin to think college planning.
The most common goals:
- Stay at home parent for baby
- A bigger house
- College education for the newest member of the family
- Comfortable retirement
Stay At Home Parent: You need to decide if you can live on one income and for how long. That may mean putting off buying the bigger house for a while and even delaying college savings. If you are pregnant or planning to have children soon practice living on one income and save the other income. Test the waters to see if it’s doable to live on one income.
A Bigger House: This goal may need to be put on the back burner if you can’t afford a bigger mortgage right now. As your income increases you may be able to take on more debt. Warning; do not take on more debt in anticipation that your income will increase.
College Education For The Baby: If you start when you are still changing diapers you can be more aggressive with your investments. Fidelity manages Massachusetts’ 529 college plan and has portfolios which are age based where they chose the investments or they allow you to choose a more aggressive portfolio which you manage. Mefa.org or Personal.Fidelity.com
The younger the child the more aggressive the portfolio can be for you may have 17 years before he starts college. The older the child the less risk you take with the savings for you want to be sure the money is ready when she is.
Comfortable Retirement: Please don’t put retirement planning on the back burner. There are so many new demands on your resources with a baby, but it is a mistake to stop contributing to your retirement plan. So often parents begin to think in terms when the kids are older; they think they will have more money to sock away for retirement.
From my experience the bigger the kid the more expensive he becomes. So continue to contribute to your retirement plan at work and if one parent does stay home with the baby consider using a Spousal IRA. The at-home parent can use the joint family income as the basis for their IRA and contribute up to $5,000 this year.
Be sure you both have adequate life insurance. Term life insurance is cheap for young couple.