Ever listen to a weary, sleep-deprived parent bemoan the cost of raising children? You might hear them utter the phrase "hemorrhaging money" on more than one occasion. Yes, kids are bundles of joy, but they demand a lot of your time -- and a lot of your money. So if you're thinking of having kids of your own, aim to tackle these five crucial steps before embarking on what's bound to be the most challenging, though rewarding, adventure of your life.
1. Pay off credit card debtNobody wants credit card debt, but that's especially true of new parents. Once you have a child, your costs will only go up, and the longer you hold on to that credit card debt, the more it'll cost you to repay.
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Let's say you're carrying a credit card balance of $5,000 with a 10% interest rate and expect to make a $200 payment each month to slowly pay it off. Stick to that plan, and it'll take you 29 months to make that balance go away, not to mention that you'll pay about $630 in interest in the process. Up that monthly payment to $1,000, however, and you'll have that balance paid off in six months. Plus you'll lose only $129 to interest charges.
Not sure where the extra money will come from? Try snagging a part-time job or cutting back on other expenses such as restaurant meals and travel. Remember, once kids come into the picture, they'll have you pinching pennies and stretching every paycheck, and at that point it'll be even harder to pay off whatever debt you have. You're much better off starting your parenting years with a clean financial slate.
2. Upgrade your health coverageIt's a sad fact that medical debt is the No. 1 cause of personal bankruptcy filings in the U.S., and given the costs of bringing a baby into the world, from prenatal to newborn care, having a comprehensive health plan is crucial. Consider this: Women with health insurance pay an average out-of-pocket cost of $3,400 for childbirth alone. If your current plan offers shoddy maternity benefits, you could be in for a shock when those bills start rolling in.
Even if you have health insurance in place, it often pays to upgrade to a better plan if you're thinking of having children. Paying a higher premium could save you money if it lowers your out-of-pocket deductible and offers increased coverage for your family.
Let's say your current plan costs $600 per month for you and your spouse but comes with estimated out-of-pocket costs totaling $6,000 for prenatal care and a hospital stay. If you upgrade to a plan with an $800 monthly premium and estimated out-of-pocket prenatal and hospital costs of just $2,000, then you'll come out ahead by paying the extra $200 each month.
Also keep in mind that children, no matter their age, tend to be germ magnets. You have a lifetime of doctor visits and antibiotic prescriptions to look forward to, so the better your health coverage, the more you could potentially save over time.
3. Purchase life insuranceWhether you're rolling in dough or living paycheck to paycheck, having life insurance becomes essential when you have children who are financially dependent on you. If you don't have a life insurance policy already in place, stop what you're doing and apply for one. While whole or permanent life insurance offers certain benefits -- namely, your rate will never increase, and a portion of your premium builds up a cash value that you can borrow against -- it can be exponentially more costly than purchasing a term policy.
If you're a healthy 30-year-old non-smoker, then you might find a 20-year term policy with a $500,000 death benefit that costs you $500 a year on average. While that may seem like a lot to pay for something you're hoping never to use, consider the alternative for your family in the event of your untimely demise. How will your family pay the bills if you're not around? When you think about it that way, $500 a year isn't much at all to pay in exchange for your family's financial security.
4. Create a willEven if your current assets aren't much to brag about, the best way to make sure they wind up in the hands of your loved ones is to create a will. And yes, your will can include provisions for an unborn child. Most attorneys charge a flat fee for will preparation, and so as long as your estate isn't particularly complicated, you could be looking at as little as $300 from start to finish. You can even go ultra-frugal and draft your own will online. You can find a DIY will program for $100 or less.
5. Pad your savings accountAccording to a 2014 report from the USDA, the average cost of raising a child from birth to age 17 is currently around $245,000, not including college tuition or inflation. Secretly hoping to send your kid to Harvard? You'd better start saving now. When children come into the mix, they bring all sorts of costs with them, from healthcare to education to new shoes every few months. It will get even tougher to save money when you have extra bodies to clothe and mouths to feed, so your best bet is to sock away as much cash as possible before taking steps to expand your family.
While children are a huge drain on your resources, you can make your journey into parenthood preparing yourself financially for their arrival, you'll make that journey into parenthood significantly less stressful. The key is to make these moves while you still have a clear head on your shoulders, before you find yourself sleep-deprived and knee-deep in dirty diapers. Consider yourself forewarned!
The article 5 Financial Moves to Make Before Having Kids originally appeared on Fool.com.
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