A lot of people think about starting an investment account for their children right after their kids are born. A lot of people think about it ... but never do it.
The truth is that once you have a baby, a lot of your financial plans go right out the window. You have less time and higher expenses. And you have one more priority: your kids, including their education and their well-being. Your financial decision-making just got more complicated than it was.
Here are three guidelines to help your growing family stay on track:
1. Put yourself first. This is classic advice, but it bears repeating. If you're the good parent I know you are, your instinct will be to sacrifice for your kids. Just don't go overboard. Saving for retirement or a career change you hope for down the road are just as important as your kids' education -- and there are more sources of help for your kids' education. In order of priority: make sure you have an emergency fund of three to six months of living expenses; save for your retirement; and then save for your kids.
2. Make a good choice about who's staying home and for how long. This is one of the toughest questions. About 30 per cent of expectant and experienced mothers cited that question as the biggest source of fights with significant others, according to a NerdWallet survey.
There are two big factors to consider: the immediate financial impact and the long-term financial impact. The first means how much salary you give up, balanced against how much you save by not having to pay for work-related expenses like childcare. Then, there's the long-term question, which people often neglect: What is the opportunity cost?
While you're not at work, your field is moving ahead. Your income may never recover.
On the other hand, there's an opportunity cost to working too: missing out on time with your son or daughter while they're little.
There's no perfect answer.
3. Open the investment account BEFORE the baby arrives. It will be a lot easier then, before the sleep deprivation sets in, and then the terrible two's and then the school obligations ... and so on. If you manage to save just $1,000 every year until your son or daughter is 21, you'll have almost $55,000, assuming a 6% rate of return. That's a nest egg to pay for college, graduate school or a down payment on the first house -- a big gift to get your child started off as an adult.