Financial Goals: And Baby Makes 3
BOSTON (CBS) - Having a baby creates a family and makes us look at things differently.
Babies cause you to rethink your goals. Instead of a sports car you are thinking SUV. Instead of retirement planning you begin to think college planning. Instead of a glass top coffee table you go for the wood chest which doubles as a toy box.
The most common goals for new parents:
- One parent staying at home with the baby
- Larger emergency fund
- College savings for the newest member of the family
- Bigger house
- Comfortable retirement
Stay at home parent: You need to decide if you can live on one income and for how long. If you are pregnant or planning to have children try living on one income and save the other income. See if it's doable.
According to Marketwatch, in 24 states, childcare costs more than college. According to the Boston Globe, average cost of childcare in Massachusetts is over $16,000 a year. One of the most expensive in the nation.
A bigger house: This goal may need to be put on the back burner if one of you is staying home with the baby.
College education for the baby: if you start saving when you are still changing diapers you can be more aggressive with your investments. Fidelity manages Massachusetts' 529 college plan and has portfolios that are age based where they choose the investments or they allow you to choose a more aggressive portfolio which you manage.
It's not a good idea to put retirement planning on the back burner when you have kids. There are many new demands on your resources with a baby, but it is a mistake to stop contributing to your retirement plan.
So often new parents think in terms when the kids are older 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 $5,500 this year.
Be sure you both have adequate life insurance. Term life insurance is cheap for a young couple.
