The True Costs of Having a Baby Part IV: Plan Ahead

August 2, 2012

By Preston Cochrane, President and CEO, AAA Fair Credit Foundation & Utah Saves

This article is part four of a five part series concerning the costs of having a baby.

The True Costs of Having a Baby - Part I: Knowing the Price

The True Costs of Having a Baby - Part II: To Work or Not to Work?

- The True Costs of Having a Baby - Part III: Childcare

When your baby is just learning to smile and grasp your finger, college education may seem too far away to think about. But to fund your child's education, you'll need to amass a large amount of money. If you plan ahead, you'll provide your child with a much wider array of education options.

In the year 2000, tuition for a bachelor's degree program, including housing, at a public university averaged between $20,000 and $50,000. A bachelor's program at a prestigious private university may cost more than $150,000. By the time your child is ready for college, it will be much more than that.

Start a college fund as soon as you can for your child. A small amount invested 18 years in advance will grow to much more than a larger amount saved a year before it's time for college.

Life Insurance
The size of the life insurance policy that's right for you depends on a lot of factors. Try to figure out how much your family would need to continue their lifestyle if you were to pass away. Many experts suggest six to ten times your yearly salary. Take into consideration the following:

  • The usual expenses of your family (including your expected expenses for your new baby)
  • Large amounts of money needed in your child's future - college costs, for example
  • How much income you usually provide for your family.
  • The extra expense of raising a child alone (childcare, domestic help, etc.)
  • Your assets and investments that will be available to pay these expenses. That will reduce the amount of life insurance needed.

There are many different types of life insurance product, but two of the most common are term insurance and whole life insurance. Term insurance is like auto insurance. You pay a premium, and if you die during that term, your beneficiaries will be paid. The rates increase as you get older because your chance of death is higher. Whole life insurance guarantees a level premium over your whole life. A whole life policy accumulates cash value, but to tap that value you must cancel the policy or borrow against it. When you die, the insurance company pays only the face value of the policy, not the face value plus the cash value. If you cancel the policy, you will be taxed on the amount you receive less the premiums you have paid.

Consult with an insurance agent for more specific information about life insurance plans and which one is right for you.

Maternity and Paternity Leave
Most companies don't provide paid maternity leave - and don't have to. The Family and Medical Leave Act, which only applies if a company has more than 50 employees, ensures mothers should be able to return to their old job or an equivalent job up to 12 weeks after they begin their leave. The actual policy varies from company to company, especially if the company has fewer than 50 employees.

If you are a father, ask your employer about paternity leave. The Family and Medical Leave Act does not cover this time, but many employers are offering the same or similar benefits to their male employees.

Plan monetarily for maternity and paternity leave, as it is unpaid. You may be able to save up sick time and vacation time to continue receiving income for several weeks. But most likely, you will lose some income during this time. Even though it's costing you money to stay home from work, don't rush back into your hectic world too soon. Pregnancy and birth are very strenuous (sometimes on fathers, too!) and the rest will be very good for both your body and mind.

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