Planning for a baby is exciting and sometimes a little frightening for expectant parents, especially first-time parents. Baby showers, choosing a name and getting your home prepared are just a few of the important tasks that prospective parents will be managing. While it may be overwhelming at times, the months will fly by and soon you’ll be at home embarking on an adventure along with the newest member of your family. Welcome to the excitement, exhaustion, fascination, bewilderment and love that is parenthood.
Along with the joy and fulfillment that a new baby brings, you will have new financial responsibilities. Getting prepared early can help save you money and avoid stress. The USDA estimates that two-child, middle-income, married-couple family in the U.S. will spend $233,610 on average, to raise a child from birth to age 17 — the doorstep of the college years.
The six-figure price tag might raise some eyebrows and average numbers obviously only tell part of the story. The USDA’s estimated costs vary greatly depending on family dynamics and location. Emergencies and the costs that come with them are an unavoidable eventuality for any family. Outside of emergencies the amount you spend and what you spend it on is largely based on your discretion.
But let’s get back to basics. Sticking to a financial plan could help you provide wonderful opportunities and experiences for your child while keeping your family’s costs under control.
Preparing for the cost of birth. Parents magazine has a rundown of some of the items you might want to cross off your list during the pregnancy, such as paying down credit card debt, creating a new budget, setting up automated personal finance software and reviewing the beneficiaries on your accounts. You might not have the time or energy for these tasks once you’re a parent so you may want to take care of these items sooner rather than later.
Whether it’s a broken chair or an emergency room visit for a broken arm, it will be more important than ever to have an emergency fund. As they grow older, children are adventurous and accidents can happen.
Childbirth itself can be extremely expensive, and you’ll want to review your health insurance policy and get a clear understanding of your coverage during prenatal care, labor and delivery. Affordable Care Act (Obamacare) and Medicaid plans always cover pregnancy and birth, but copays, coinsurance, deductibles and maximum out-of-pocket amounts can vary. You might not be covered at all if you have a grandfathered plan. Try to make sure your coverage matches your vision for the birth (although as parents can tell you, prepare for things to go awry). This could mean knowing which hospitals accept your insurance, which procedures require pre-authorization from a specialist and whether your policy includes coverage for a private room after the birth. Ask about coverage for home births, a midwife or a doula if you’re considering those routes.
You can change to a new Marketplace plan, and add your child, after the birth as you’ll be eligible for a Special Enrollment Period.
Saving money during the first few years. As you adjust to life as a new parent — sleepless nights, bath times and diapers galore — you’ll likely be tempted by a wide range of childcare products. While some products are necessary, there are many ways to save on everyday infant purchases.
Ask at the hospital, research online and check with pediatricians for free childcare samples. They may not last long, but having a stockpile of various sample-size products can come in handy. Also ask about a free breast pump, which you may have a right to with an ACA healthcare plan.
If your budget is tight, consider shopping for clothes and toys at second-hand stores or garage sales and join local parent groups for free swaps. Better yet, avoid an extra trip and ask relatives or friends to send or bring over hand-me-downs. Always check for safety recalls on toys or other used baby items.
What about saving on the basics? Consumables, such as formula, diapers and wipes can be bought in bulk at warehouse stores or shipped to you via a subscription from an online retailer. Either option could provide long-term savings compared to buying as you go.
Discuss childcare options. Some families need the income from two working parents, others can choose to stay at their job or become a full-time parent.
Lower childcare costs and less ancillary costs, such as transportation and meals, can somewhat make up for less income if you leave a job. However, you may also lose out on some employer-provided benefits and reentering the workforce later can be difficult.
If you and your partner are both returning to work, that can mean hiring a nanny or sending your child to daycare. While neither daycare nor a nanny is cheap, financial assistance programs and tax credits can help offset the cost of childcare for some families. In the end, the decision may not be entirely financial. You could value extra parent-child time over a second income, even if it means living with a tighter budget. But even if you’re unsure of daycare, you may want to sign-up for local centers’ waitlists now because it can take years to get a spot.
Plan for the worst case scenario. As a parent, you’re responsible for the wellbeing of your child. A will is a good idea, especially if you haven’t made one yet. If you have an existing will, now could be a good time to go over it and see if any updates need to be made concerning the wellbeing of your child. Consider things like appointing a guardian and financially providing for them.
Also, if you don’t have life insurance, this is a good time to start shopping for a policy. If something happens to you, life insurance is a good way to help ensure that he or she will be supported financially.
Whole or permanent life insurance policies will cover you for as long as you pay your premium. Some whole life insurance policies have a savings or investment component that you can borrow from or receive distributions from over time.
A term life insurance policy will cover you for a specific period, such as 10 or 20 years. At the end of the term, the policy ends, and you won’t receive any money back. Premiums on term policies may be lower than on whole life insurance, and this could be the better option if you’re only looking for coverage while you support your child.
Premiums can also vary depending on factors like your age, sex, health, whether or not you smoke and the particulars of your policy. You can shop for a quote from different life insurance companies, or use a broker to get multiple quotes at once.
Bottom line: A new child will bring great joy to your family, but when wants or needs arise, you will want your finances to be in order. Whether your family is planning for a child or you are already expecting, it’s never too early to prepare for the cost of raising a child. Give your family the best start to the joys of parenthood by being on sound financial footing. After all, a new addition to your family is the best gift and the start of an amazing adventure.
Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.