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Babies and Families

How to prepare your finances for a second child

In the hustle and bustle of adding a second child, it's easy to overlook how a typical family's financial dynamic will change once more.

Not only do parents of a growing family have to figure out how adding another child will affect their day to day finances, but they will also need to focus on the longer term, more serious financial considerations. These include estate planning, insurance, and more.

Most people know that a child's upbringing isn't cheap, but it might surprise you how expensive it really is. The U.S. Department of Agriculture (USDA) estimates that the average cost of raising a child born in 2015 today is $233,610, which includes the cost of basics and necessities, but not the cost of college.

So, in order for families to be prepared, below are a few key steps they may want to consider when they find out they are expecting their second child. These steps will not only ensure a household continues to run smoothly from a financial perspective, but also that all family members (including their newest one) are protected long term.

Step 1: Research your childcare costs and options

One of the first expenses that will change with the addition of a second child are childcare costs for working parents. According to Child Care Aware of America, the annual average child care costs in the United States is $10,174. In some cases, that’s more than tuition at a public university. This can put a significant financial strain on families. 

As such, it's important for parents to do the math. Is it more beneficial for one parent to stay at home rather than incur the cost of childcare for two children? Or, if the older child is of school age, will the second child's costs simply replace their older sibling's child care fee? If both need care while their parents are working, is it less or more expensive to hire a nanny in lieu of daycare? Does either parent have a job with more flexible hours that might be beneficial for a family with young children?

These are all questions that parents should not only discuss with each other but also their co-workers, bosses, family members, and friends to enable them to make the best decision for their family emotionally and financially.

Step 2: Assess your current lifestyle costs

Lifestyle costs include things like your home, your car, your gym membership, and more. What are some of the things you own or the services you enjoy to keep the lifestyle you want? Do you get monthly massages? Do you enjoy a dinner out from time to time?

Take some time to think about the experiences and possessions that make up your lifestyle. Sit down with your spouse and discuss which ones you can't live without and which you could get rid of. For example, are you willing to let go of your pricey gym membership so that you can purchase a larger car?

It can also be helpful to think about purchases for your new baby. Will you have two children in diapers now? Do you have baby items from your first child that you can re-use for your second child? Do you have a babysitter who will charge more to watch two children if you go out on date night? Will you have to give up your home office in order to find space for a new nursery?

All of these changes are important to consider with the arrival of a new little one. Luckily, none of them has to break the bank as long as you make thoughtful decisions of what you can keep and what you need to let go to afford more of what you want for your new family.

Step 3: Prepare for the unexpected

According to research by Bankrate, 57% of Americans are uncomfortable with the amount of emergency savings and 22% have no emergency savings at all.2 This means that if the water heater in your home breaks or your car needs extensive repairs, it could put your family at financial risk.

So, one of the best ways you can prepare for having a second child is to build an emergency savings fund to ensure you don't get off track. Now is also the best time to create or update your will, making sure it includes a plan for your children's care if something unexpected happens to you. It's also wise to establish a trust for their care and to increase the amount of life insurance coverage you have. If you don't have a life insurance policy, now is likely a good time to get one.

Remember, once your second child comes, you'll be thrust back into the newborn stage and all of the lack of sleep and the wonderful baby smiles that come with it. This will give you little time to put your financial ducks in a row. So, as preparation, it's time to build out your emergency fund and contact a life insurance company that can help you understand the best coverage level for your growing family. You should also consider making a few calls to your health insurance company to get a quote on the cost of the delivery, hospital stay, and the fee for adding an additional family member to your health insurance plan. Although all of these steps sound time consuming and even stressful, completing them will go a long way in preparing your family for an uncertain future.

Ultimately, growing your family is an incredible experience and one that will change your life for the better. However, you can make the transition even smoother by taking the necessary steps to get your finances in order before your second child arrives.




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