It’s true what they say: You’ll never be 100% ready, financially, to have children. There are always going to be unexpected costs that pop up and unless you’re a millionaire with a consistent stream of income, it’ll seem like you never have enough to support the lives of a kid or two.
Kids come with a lot of expenses, no matter what age they are. When you’re pregnant, you need to pay for prenatal care and labor. Babies need bottles and diapers, toddlers need training pants and learning toys, kids need school supplies and money for fundraising, extracurriculars, and school lunches. The list goes on and on.
Although you can’t ever know what to expect about kid-related finances until you become a parent, there are some things you can do to set your finances on the right path for parenthood.
1. Build Your Credit
Building your credit is something that you should start thinking about long before you have children. You can even start boosting your credit in high school and right after graduation. It’s one of the most important financial moves you can ever make, so the sooner you start, the better.
The path to good credit can be a long one, but as long as you are adamant about staying on track – and you know what to do to build and improve it – you should notice significant changes each year.
Building credit is important if you’re thinking about having kids because you’ll need good credit to qualify for low-interest loans, credit cards, and a mortgage. Having a solid credit plan in place will set you off on the right foot toward building a bright financial future for your kids.
Getting Started with Credit
People fresh out of college and in their early to mid-20s usually don’t have much of a credit history to their name. That’s okay; it’s normal. If this describes you, though, you’ll want to start the process of getting some credit in your name.
The best way to do this for people with little to no credit history is by opening a secured credit card account. Secured cards require you to put money down as your credit line. You’ll pay $300, for example, for a $300 credit line.
Use the card responsibly by paying off its balance every month. After one or two years, most card companies will allow you the same, or a higher, credit limit that’s unsecured. You’ll also get your original deposit back!
Monitoring Your Credit (for Free!)
As soon as you start building credit, you need to keep track of it. After the first few months of consistent usage of your secured card, you should start to see your credit history build and you may see your score rise. It’s easier to get credit when your score is 700 or above, which will take a while, so shooting for about 650 is still a good goal.
There are several free monitoring companies that help you track your credit score and history and tell you what you need to do to improve it. Credit Karma and Credit Sesame are two excellent services that are 100% free and offer detailed analytics of your credit information. Sign on at least once a month to see what you’re doing well and where you can improve.
Now that your monitoring service has suggested some ways you can boost your credit, start heeding its advice. Raising your score to 650 or more can open you up to several new credit cards and loan opportunities, making it easier to obtain credit when you need it most.
The most important things you can do to improve your credit rating include:
- Not carrying a balance month-to-month on your credit card
- Occasionally opening a new line of credit
- Diversifying the type of credit you have (mortgage, credit cards, auto loan, etc.)
- Paying bills on time, every time
- Not closing any accounts (creditors want to see a long history!)
- Sticking with the same job long-term (frequent job-switching points to you being a risk factor because you’re unlikely to ha ave steady income)
- Avoiding applying for several types of credit in a short time period
Again, pick one or two monitoring services you love and see what they suggest for you. Sometimes, they’ll even suggest the best credit cards and loans for you based on your current score.
2. Pay Debts
As we get older and open more accounts, it’s easy to accrue debt. It may come from medical bills, credit cards, or student loans, but whatever the source, there’s one thing for sure: It’s crucial that you pay it as soon as possible.
Your debt may not seem like a lot at first. It might start off totaling about $100 in minimum payments a month but then you open more accounts, miss a payment here and there, and continue only paying minimum payments, and suddenly you’re paying $200 or $300 a month.
Going into parenthood with little to no debt can be freeing. You’ll be open to more financial opportunities that you may need once you have kids, like affording a bigger home or car or putting extra money into savings for college.
Consolidating or Refinancing Loans
If you have several loans already, or one or two high-interest loans, it’s in your best interest to see what else is out there, provided you’ve already had these loans a while. Refinancing or consolidating new loans may not be possible yet depending on your lender’s rules, and it could be less beneficial for you financially.
Consolidation bundles up multiple loans into one, giving you one interest rate and one monthly payment. This option is helpful if you’re having a tough time remembering your various payments or you have multiple loans through one lender or lenders who often work together.
Refinancing is the process of changing a loan to another lender or a different loan option with the current lender to get the interest rate lowered. You can also reconfigure loans to pay more each month, if you can afford to, but have your interest rate lowered, so you’re effectively hammering down your debt quicker.
Check Your Student Loan Options
There are several options available to help pay your student loans, especially if you have government-funded loans. It’s an awesome idea to get a good chunk of your student loans paid off before you welcome a new baby into your life, but it’s easier said than done when you have tens of thousands of dollars in debt.
You may be able to lower your monthly payments on government-funded loans by looking into income-driven repayment (IDR) plans. These programs reduce how much you pay based on your household income. It may take longer to pay off the loans, but you also won’t get stuck paying more than you can pay safely.
Private lenders may also be able to help by refinancing, consolidating, or providing you with unique loan options. It never hurts to give them a call and see what they offer to help you pay your debt faster.
3. Make Sure Your Parents are Financially Sound
Are both of your aging parents still in the picture? Many Millennials are now stuck in what’s known as the “Sandwich Generation,” where they’re caring for both aging parents and young children at the same time – physically, emotionally, and financially.
As incredible as it is to be able to give back to the people who raised you, it can also have a huge impact on your income, especially if you help pay for medical bills, an aide, or a nursing home. If this sounds like you, you might want to look into financial options for your parents so that you’ll have more cash available when you’re ready to start your own family.
4. Have a Solid Savings Plan in Place
Saving money is often easier said than done. Much of the population lives paycheck-to-paycheck, making it difficult enough to pay bills, let alone save any extra.
You know what I’m going to say though: When kids come into the picture, savings is no longer something you should do, it’s something you need to do, both for them and yourself.
These tips can help:
Saving for Emergencies
The easiest way to save money for emergencies is by building a nest egg consistently without having to think about it too much. You can do this by creating an automatic savings plan if your bank offers it, or by using a savings app like Digit.
With an automatic savings plan (ASP), you’ll set an amount to automatically withdraw from your bank account to a savings account each week, month, or frequency you choose. I recommend smaller amounts each week so you’ll get a consistent flow that doesn’t seem like a huge chunk of your paycheck.
If you prefer a do-it-for-you approach, try Digit. This mobile app automatically tracks your income and expenses to decide what you can afford to save realistically every day. You can try it free for the first month, but the $2.99 monthly fee may be well worth the cost to not have to think about saving anymore.
Saving for College
Eighteen years seems like forever, but it’ll go by much faster than you expect. Then, your baby is off to college and you’ll need to foot some of the bill.
Once you start trying for kids, you should learn all you can about a 529 plan, which is specifically for college savings. The money you put in goes directly toward college tuition at more than 6,000 colleges in the United States and there are several tax benefits for 529 plans. You can even use your plan to pay for K-12 tuition.
Saving for Retirement
An excellent way to save for retirement is by investing because it helps any contribution you make grow autonomously (if you know what you’re doing, of course). Investing can be tricky, though, and you definitely don’t want to see your hard-earned money getting lost in a rotten portfolio.
Fortunately, apps like Acorns and Stash do most of the tough work for you. Acorns invests spare change from rounded-up purchases into a portfolio, while Stash takes whatever you decide to save and invests it in a portfolio you choose based on your savings needs.
5. Research Your Health Insurance Options
Your health insurance is likely expensive now. Most are. When you have kids, the premiums are only going to go up from there. There are more resources available for health insurance than you might think, though.
First, always check with your employer. The company might offer free or discounted insurance as part of a benefits package that you aren’t yet aware of or don’t yet qualify for but might in the future. Make sure it’ll also cover your future kids.
If that’s not available, be sure to check the Healthcare Marketplace during open enrollment. Based on your income, you could qualify for a subsidy (which will be more when you increase your family size) or Medicaid. eHealthInsurance might also help you find more affordable plans.
6. Make Sure Your Job(s) Go Way Beyond Paying the Bills
If your job everything you wished it would be? Probably not. It’s not often that we get jobs we love 100%. That doesn’t mean you shouldn’t expect more from your career.
Finding the right job can be a tough process, but it will benefit you tenfold to find something that offers more than just a paycheck that barely pays the bills. The right job will go above and beyond, giving you enough to support a family with, plus extras to support your biggest life goals.
What does your job offer you besides your paycheck? Do you have health insurance, gas reimbursement, tuition assistance, etc.?
If not, you might want to consider making a big switch that’ll give you more of what you need. Employee-focused jobs give combinations of benefits, including things like:
- Paid time off
- Remote work opportunities
- Health, vision, and/or dental insurance
- Retirement or savings plans
- Life insurance plans
- Paid company vehicle
- Sick time and personal days
- Family planning and assistance
- Paid college classes or tuition reimbursement
Even just one or two of these benefits can come in handy for a new family.
When you’re planning to start a family, one of the most important things to look for from your job is financial assistance for planning your family. What will you do when you’re pregnant, in labor, or spending time with your new baby without money from your job to pay the bills?
Maternity and paternity assistance is something that many companies have adopted, but there’s still a long way to go. While some companies only allow you time off without penalty, others will pay for that time off for six weeks or more. Obviously, you’d want the latter.
Some jobs might also offer child care assistance or an on-campus daycare center where you can drop off your little one for free while you work. These benefits can be priceless to parents.
Bonuses and Raises
Bonuses are popular incentives to keep employees motivated and happy. Raises can give you a better wage to live on. Both benefits are crucial to your satisfaction with your job and ability to raise your future children.
Try to stick with companies with regular bonuses that don’t get pushed out of the way when financial times get tough. Your job should also stick to annual raises, at least, that coincide with your performance.
Lenience with Time Off
Remember that, once you have kids, your need for time off will likely increase. You may have an unbreakable immune system, but a baby doesn’t – nor will you when you catch some of the of baby’s new germs!
Paid time off can be your best friend as a parent, allowing you to miss work for illness (or a day to yourself) without worrying about missing pay. Even if your job doesn’t pay for sick days, at least make sure you can take them when needed without negative consequences.
7. Get a Side Gig if Needed
You might love your job or not be in a position to switch just yet. That’s okay! Almost 40% of people have a side gig that nets them extra money outside of their job. It could be the perfect solution for want-to-be parents who need more money without changing jobs.
A few months to a year before trying for a baby, work on picking up and saving from a side hustle. That gives you a total of about a year and a half to two years before the baby arrives to save everything you can to grow a financial safety net.
8. Learn to Be Frugal
Now’s the time to learn, live, and breathe frugality if you don’t already. Your future children will learn much of what they know from you, and one of the best things you can teach them is how to be smart with money.
Learn how to meal plan, save money on groceries, plan free or cheap activities for the family, and more. You’ll save money so you can do more with your family and the kids will learn that money doesn’t grow on trees.
9. Remind Yourself That It’s Also Okay Not to Be 100% Financially Ready
This is probably the most important piece of advice I can give you: Never wait until you’re 100% financially ready to have kids because it’ll never happen!
No one is ever fully prepared for how life changes when they have kids. There’s never a perfect time to start a family. There will be a good time for you and your family, though.
When you feel like you know enough about money to teach helpful money-handling strategies to your kids, you’re satisfied with your job, and you have enough extra cashflow to put some money into savings and a retirement plan, then you’re off to a solid start.
These money strategies are points to consider before starting a family. However, every family’s circumstances are different. You need to do what you think it best, financially, for you, your partner, and your future kids, because you know your situation better than anyone.
How “financially ready” do you think you were before you had kids? Do you think differently now? If you don’t yet have kids due to money, what one thing is holding you back most?