Get your financial ducks in a row, so you can enjoy time with your little one.
Bringing a baby into the world is a joyous and often overwhelming experience for parents. Choosing a name, picking a nursery color, and scheduling newborn photos are just some activities new parents look forward to. Preparing financially? Perhaps not so much. But while it may not be as exciting, it will help you enjoy the good times — without the fear that you are sinking deeper into debt.
To get ready, you should create a financial action plan, especially focused on how you will cover expenses incurred during the first year. Remember: Planning alleviates stress so that you can spend quality time with your precious newborn.
On average, parents will spend close to $12,000 on child expenses during the first year of their baby’s life. And that number doesn’t include the cost of giving birth itself, which varies depending on the type of birth you have, complications that may arise, and your insurance plan.
The annual cost of having a baby increases again during year two as you begin to update and baby-proof your home. And — I hate to tell you this — costs only keep going up. In fact, as of 2015, raising a child from birth through age 17 was estimated to cost around $233,610 — not including college.
So, how do you financially prepare for a child?
Know What Products You Need to Buy — and Those You Don’t
Think about all the basic items you’ll need to furnish your nursery, car, and home. Some of these items include:
- Changing table
- Rocking chair
- Car seat
- Portable crib
- Baby monitors
- Diapers and wipes
- Baby food, bottles, and binkies
- High chair
Often, people want to host baby showers or give gifts to the expectant parents. It’s OK to ask for what you need if someone wants to give a gift. Consider having friends or family members go in on a high-priced item to help alleviate your financial burden.
Also, talk to other parents to see which items are “must haves” and which you can purchase later — or simply do without.
Do Your Research Before Shopping
Although it’s fun to go shopping and load up your cart with cute mobiles and a fancy pram, it’s important for your budget that you take the time to research and calculate prices on baby items.
Look at different buyers’ guides available online to compare prices and safety features.
Also, consider purchasing some items secondhand. Sites like OfferUp provide a marketplace for gently used baby items. On Facebook, there are groups that connect local moms where you can often find free clothes and toys since kids outgrow items so quickly. If you take the time to plan, you can save a lot of money.
Update Your Budget
When you find out you’re pregnant, it’s wise to immediately update your budget and begin planning for the upcoming large expenses. Find places you can cut back on spending and increase savings. Consider budgeting by trimester to create achievable and timely goals.
It’s inevitable that your spending will increase when you have a baby, but if you prepare ahead of time, you won’t be caught off guard and become upside-down on your expenses.
Discuss Responsibilities With Your Partner
Childcare and work responsibilities are two major issues that parents must discuss before the baby arrives.
“The biggest expense we’ve encountered is childcare,” says a California-based father of two. “I actually started a separate baby savings account as soon as we found out my wife was pregnant.” He pays over $3,300 a month in childcare — “well over what we pay for our mortgage,” he notes.
Additionally, you should discuss:
- How much leave will each of us take after the baby arrives? How much paid and unpaid time off do our employers offer?
- Will one of us be a stay-at-home parent? How will the working parent(s) contribute to childcare?
- Do we have friends or local relatives who could help us defray our childcare expenses — by providing free care, sharing a nanny, or setting up a childcare co-op?
- Will we purchase life insurance as a safeguard?
“There are so many unexpected costs when you have kids. It’s just crazy,” says Scott Johnson, a father of two boys in California who works in insurance. “But one of the most important things I remind clients is to get your term-life insurance in place as fast as you can.” Whatever your backup plan may be, be sure to talk about it in advance with your spouse.
Change is the only constant in life. No matter how prepared you feel, you’re likely to be surprised at some point in this new journey. However, if you take the time to plan, you’ll be less stressed and more at ease when the baby arrives.