Money Matters

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Planning financially for a child

Provided by RBC Wealth Management
and Dave Dupont

Raising a child requires a significant amount of money — well into the six figures. Therefore the earlier you prepare, the better financial situation you will create for yourself and your child.

If you’re just starting a family, one of the first things you should do is make sure your child has adequate health care coverage. Check with your employer to see what is offered through your health insurance plan in terms of care for infants. Another option would be to establish an individual policy for the baby, which in some instances can save you more than your employer’s plan.

When budgeting for a child, you obviously have to plan for costs such as diapers and formula. You’ll also need to weigh the financial implications of having one parent stay home with the child versus sending the child to day care.  Maybe you’re questioning whether you can afford having one parent not working. If that’s the case, try living on one salary during the pregnancy. This will give you an idea of what it’s like to live on less income and will help in budgeting your expenses. It will also give you nine months of income in the bank.

If both parents plan to return to work, day care will likely be one of your biggest expenses. To help lessen the financial burden, a smart move might be to fund a flexible spending account with pre-tax dollars. This is typically offered by employers with a tax ID number, and is a great option for parents trying to minimize day care expenses.

When turning your focus to the future, one thing that is of great importance is making sure you name a guardian for your child should something happen to you or your spouse. You should also consider having a life insurance plan in place so your child is protected financially. The amount of insurance you need really depends on your income and whether or not you want a policy that pays off your mortgage and/or the child’s college education.

Should you decide to fund your child’s college education, it’s never too soon to start planning. Even if your scholar is in diapers, you can really get a jump on rising college tuition costs if you establish a plan and begin saving now. It’s also important that you don’t sacrifice your own retirement for your child’s college education, as most experts believe that saving for your retirement is more beneficial to your children in the long run.

The information included in this article is not intended to be used as the primary basis for making investment decisions. 

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC

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