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When I found out I was pregnant with my son 12 years ago, I worried: Would I be a good mom? Could I handle caring for a tiny human who was totally dependent on me? Would my son be healthy?
The one thing I didn’t worry about was money — not because I was independently wealthy (I wasn’t). At the time, I was totally naive about what it really costs to raise a new baby, which, in case you’re wondering, is around $233,610 from birth to age 18 for a middle-income family (not including college).
Fast forward seven years. When I remarried and got pregnant with my daughter, now 5, I had a much better idea of the budget I’d need for her birth and first year since I’d “been there, done that” with my son. I even calculated how much money I’d need to meet the deductible between pre-natal treatments and labor & delivery at the hospital before my health insurance kicked in (#financenerd).
Still, there were challenges and new baby costs. Here’s what I know for sure after having two kids: You’re never fully prepared, financially or otherwise, to become a parent. That said, planning ahead can help alleviate some of the financial stress that comes with a growing family.
Talk It Out
New parents should talk — to each other and other parents –and set their financial goals and expectations accordingly. Before their son was born, my brother Jim and his wife Sara looked at their personal finances from multiple angles. “We talked a lot to each other, and spent some time looking over our budget and savings account. We had some conversations with friends about the costs of childcare. We did not have any formal discussions with a financial planning professional,” Jim notes.
New moms and dads should not just talk about what ways they can save money, but also what splurge items are most important for their family. Do you want to save on disposable diapers and use cloth diapers, or do you value the convenience of throwing away a dirty diaper? You should also give yourself the flexibility to change your mind when reality hits!
You might also want to get an early start on talking about your baby’s personal or college savings account. That may feel like a lifetime away, but it is good to start early when it comes to savings. Letting compound interest work for you can save some stress later on.
Start Saving for Baby’s First Year Early
When preparing for a baby, consider saving several months’ pay ahead of time, especially if you plan on taking significant time off to enjoy your little one. Having a cash cushion in your bank account makes bringing home a newborn a little less stressful. Russ Thornton, a financial advisor and founder of Atlanta-based Wealthcare for Women recommends building a liquid emergency fund of 6-12 months of living expenses, just to be safe. That may seem like a lot, but it’s easier to do the earlier you start.
Create a Baby Budget
In addition, Thornton suggests expecting parents get on a written budget for baby gear as soon as possible, and try to estimate their expenses after baby, including things like furnishing a nursery, diapers, and all the supplies and related expenses that go with caring for an infant. Looking back, taking stock of the cost of baby items is something I wish I’d done before I had my son.
“Children introduce additional moving parts to a family’s finances… you’ll need to consider the cost and frequency of expenses like dining out, travel, concerts, etc.,” Thornton explains. “I’m not suggesting that you can’t continue to do these things, but you’ll need to be mindful of the trade-offs between continuing past spending behavior vs. providing for your growing family.” He also recommends couples pay off, or at least pay down, outstanding debts such as student loans and credit card balances before baby’s arrival.
Prepare for surprisingly large baby expenses
It is important to mentally prepare yourself for how much some of these expenses are going to be, especially those that are essential. Infant car seats, for example, can easily run you over $300 and parents are strongly encouraged to buy new, not secondhand. And don’t even get me started on strollers or bassinets.
Add some of these big-ticket items to your baby registry. The baby shower is a great time to have friends and family pitch in to help cover the cost of your newborn. For baby clothes consider looking for community groups that do clothing swaps, or requesting hand-me-downs from friends who have children a few months to a year ahead of you. They grow out of clothes so fast you will be able to pay this gesture forward to another parent soon after.
Review Your Insurance Policy and Company’s Leave Policy
My Israel-based employer had to create a brand-new maternity leave policy since I was its first US employee to have a baby. The Family and Medical Leave Act (FMLA) guarantees 12 weeks of unpaid leave following the birth or adoption of a child. However, there are no laws in the US that guarantee paid leave of any kind, and FMLA didn’t apply to me as a work-from-home employee.
My employer was generous enough to pay me part of my salary for a certain number of weeks while I was on maternity leave and guaranteed me the same or a similar role when I returned to work. Every company is different, so make sure you look into your employer’s maternity or paternity leave policy well before the baby arrives.
Start talking to your health insurance provider early so you can learn what might be covered as a part of your pregnancy and hospital stay when you give birth. You may have a different co-pay for checkups with your OBGYN vs your primary caregiver, and you will want to be sure they are in-network. Some health insurance providers might cover your breast pump if you choose to breastfeed but need to return to work.
Finally, you will want to review your life insurance policy and update any relevant paperwork after the birth to make sure your family is covered in the event of your passing. It can be hard to think about insurance premiums or writing a will when you have so much going on, but these are extremely important things to consider for your family’s long-term financial health.
Have a Plan for Childcare Costs
Childcare in America is costly, but with both parents working in most households, it’s also a necessity. According to Childcare Aware of America, the average cost for a year of full-time care for an infant ranges from $5,496 in Mississippi to $16,549 in Massachusetts.
If you had planned on transitioning to a stay-at-home parent once your child was born, you will need to be sure you have your financial ducks in a row to make that work before the baby is born. Or if you are looking for a caregiver or daycare option after your leave is over you will want to know early how much these options cost in your area (and if there is a waitlist already).
Jim and Sara both work outside the home, and their childcare arrangement evolved over time. They knew they wanted Sara to stay home with their newborn son for a minimum of three months. However, once that time was up, neither was emotionally ready for their son to go to daycare. So Sara went back to work part-time, and they hired a nanny to help out.
“This was a relatively straightforward budget calculation to determine the percent of time Sara would need to put back into work in order for the numbers to make sense,” Jim says. When their son was 18 months old, they enrolled him in daycare and Sara returned to work full time. Jim and Sara achieved financial and emotional peace of mind by choosing flexible work and childcare arrangements that fit their family.
So, can you afford to have kids? Ultimately, that’s up to you. You don’t have to be rich to have a baby, but planning ahead and saving can help you feel more financially secure when the time comes.