Step 5: Prepare to raise your child to age 18> The U.S. Department of Agriculture publishes the annual report “Expenditures on Children by Families.” The report for the year 2000 (available at www.usda.gov) found that it costs a middle-income family (families with a pre-tax annual income of $38,000 to $64,000) approximately $205,381 to raise an only child to age 18; expenses are estimated at $165,630 to raise a second child. These figures do not include inflation.
The main objective is to make sure you have enough income to handle the ongoing expenses. Effective budgeting and career decisions are the most important things to consider.
Step 6: Start saving for college> The average cost to attend and live at a four-year public university is currently $11,976 a year, according to the College Board, a nonprofit association that helps prepare students for college. Multiply this by four years and factor in an inflation rate of 5 percent per year over the next 18 years, and you’ll be looking at total college expenses of $124,225. If you start saving now, you can meet this goal by setting aside $320 a month.
Two good choices for college savings are the Coverdell education savings account (formerly the Education IRA) and the 529 plan. With both programs, your money grows tax-free and remains tax-free if used for qualified education expenses. The Coverdell account can be set up with a brokerage firm or mutual-fund company.
With the 529 plan, your money is invested in a professionally managed portfolio that corresponds to the age of your child (more stocks when she’s young, more bonds as she moves closer to college age).
Also investigate other opportunities to save for your child’s education. For example, a program called Upromise offers a free and easy way for anyone to contribute tax-deferred money to a child’s college fund. A portion of money that you, your family and friends spend via participating well-known companies (such as McDonald’s, AT&T and many more) goes into a tax-free Upromise account. You can also open a 529 account through Upromise (managed by a reputable financial firm) and have the money automatically deposited into it.
Step 7: Enjoy your child>Do your research and know what’s ahead financially, but don’t get so obsessed with the numbers that you forget to savor time with your baby. These are precious moments that you don’t want to miss.