How to Financially Prepare for a New Baby

by Spero Financial

Many people (particularly excited grandparents-to-be!) will tell you that if you wait to have a baby until you can afford one, you’ll never have a baby. And there is a lot of wisdom in that counsel. It’s easy to settle into a baby-free lifestyle that affords more eating out, impromptu outings, and little splurge purchases. Once a couple grows accustomed to that lifestyle, then cutting back to save for and fit a baby into the budget can feel like an impossible squeeze. But the flip side of this truth is that whether your baby is an unexpected surprise or a gift you’ve planned on for months on end, there are some important steps you can take to financially prepare for a baby and help ease the transition of supporting your growing family.

There’s far more to planning for a baby than picking out paint for the nursery, debating over names, buying cute clothes, and memorizing even the obscure, little-known verses of Twinkle, Twinkle Little Star. There’s diapers and food and child care — and college.

Here’s how to prepare.

The Top 5 New Baby Expenses to Prepare For

As joyful as a new baby is, there are the expected stressors of sleepless nights, colic, integrating the baby into the family dynamic, spit-up on the new couch, changing schedules, and remembering the diaper bag when you leave the house. With those stressors already in mind, anything you can do to prepare for the financial implications of adding a member to your family will make everything else feel more manageable by not adding money worries on top of them.

In between baby showers and child-birthing classes, make time to consider these 5 common baby expenses:

1. Birth-Related Medical Expenses

Having a baby is likely the biggest medical expenditure for couples in their childbearing years. The average cost of having a baby in the United States is over $10,000. There are many variables that affect the bottom line, of course: which state you live in, what kind of health insurance you carry, whether you have a home birth or a hospital birth, and whether you have a regular labor and delivery or a Caesarian Section. In addition to the birth, some babies have health-related medical expenses.

While most couples cannot save up all the necessary cash to cover all of these (somewhat unpredictable) expenses, you should definitely educate yourself ahead of time about your health insurance coverage and do your homework on your birthing options. And then try to save a little each month toward this big expense — every penny will help take the edge off the sticker shock — which, by the way, will be completely worth it. If you’re thinking about adding to your family and want to begin saving for unexpected medical expenses, consider starting an emergency fund, talk to Spero about our personal savings accounts.

2. Maternity/Paternity Leave

If you’re like most new parents, you’ll plan to take some time off from work when your baby arrives. Even if you will be a stay-at-home mother, your spouse may want to take some paternity leave so that he can help with the transition as well as have his own quality time of bonding with and getting to know his new child. Unfortunately, contrary to what many believe, maternity and paternity leave are not a guarantee in the United States. You’ll want to look into your employer’s policy about time off for new babies long before the birth. You don’t want to be blindsided by unpaid time off just when your heart is melting with the anticipation of long days of gazing into the eyes of your new bundle of joy.

The uncomfortable truth is that US employers are not bound by law to provide maternity or paternity leave, and certainly not paid. If your employer does, count it a big blessing! In the absence of paid leave, many new parents turn to the FMLA, or Family and Medical Leave Act, a federal law guaranteeing certain employees up to 12 weeks of unpaid leave with no threat of job loss and continued health insurance coverage during your leave. If your employer does not offer paid leave, this may be a good option for you to investigate further. If you learn that you are not eligible for paid maternity/paternity leave or FMLA, then you will want to start planning now for how much leave you can take by stockpiling sick and vacation days and/or saving up some funds to finance your time at home. Fortunately, depending on your field, many employers now also offer flex days that allow employees to work from home. The bottom line: Talk to your boss or supervisor about your company’s leave policy and try to work together to get the time you want at home while also fulfilling your role at work.

3. Child Care or Living On One Income

After you have your precious baby, somebody has to tend to her every day, and it won’t be for free. Childcare is often the single biggest expense a family incurs while raising young children. According to the Economic Policy Institute, the cost of childcare for the average two-parent, two-child household exceeds the cost of housing in 500 out of 618 US communities. Unless you are fortunate enough to have an eager grandma waiting in the wings, you’ll either need to invest in a reputable day care facility, hire a nanny, or stay home with him yourself, which might mean giving up your current income. The cost of any one of these options is largely a function of geography. The economy of your hometown determines how much you’ll be paying for childcare (or how much salary you might sacrifice to become a stay-at-home parent).

The better you plan for and anticipate how you will arrange for childcare and what it will cost, the better off you’ll be when the time comes. Explore all your options. Many families are pleasantly surprised to learn that when they are really frugal with their budget, they can come out ahead by keeping one parent at home — and for many, that is also a huge emotional relief. There are plenty of other creative, out-of-the-box solutions to financing childcare.

4. Upfront Costs for Baby Needs

This cost is one of the more exciting categories, because, let’s face it, who doesn’t swoon over tiny little baby booties and enjoy testing rocking chairs for comfy bedtime stories? Most expectant parents use a baby registry from places like WalMart, Target, or Amazon. We recommend a few strategies to help keep this category in check so that you have more funds for some of the other costlier expenses.

First, be realistic. It’s easy to get dreamy about baby gear. Clever marketing entices you and can blur the lines between wants versus needs — especially when it’s for your kids! Do a little research into what you’ll really need for your baby over the course of the first year. Stick to needs if you know your budget is tight. Focus your registry on those items, and consider sharing with friends and loved ones that you prefer help in acquiring those things over fun but unnecessary toys and gadgets. They’ll get it, and they’ll feel good about being a true help to you. Next, look for high quality used items in good condition. Your baby won’t know the difference between a brand new crib or car seat and a gently used one in like-new condition. There are plenty of reputable consignment stores and websites that carry such items. Lastly, don’t insist on having every need covered from birth to college on day one. You can purchase items incrementally as your baby’s needs and developmental stages evolve. This approach will save you money up front and give you time to budget more slowly.

5. How Your Monthly Budget Will Shift

This might be one of the tougher categories because of its more long-term nature and how it evolves over time. According to the U.S. Department of Agriculture, the total cost of raising a child is just shy of $250,000 to get your kiddo to adulthood. The evolving and increasing needs of a child from one year to the next generally means more money each year. Start by sketching out some budget changes long before Baby arrives on the scene. Ask yourself what the possible needs are. Talk to friends and family who’ve been there done that to help you get an accurate take on the costs. We’ve already addressed childcare. Now, you’ll want to add to that the cost of food, clothing, and health care. Know how much your health insurance premium will increase and what kind of coverage you’ll have. This may be the time to get life insurance or increase your coverage amount to account for the new member of your household.

As the years go by, you’ll have to consider changing vehicle and housing needs. You’ll also want to think about starting an education savings account sooner than later.

Having a new baby can feel overwhelming financially, but it doesn’t have to be. Spero is with you for the long haul. We pride ourselves on forming lasting relationships with our members that grow and strengthen with your family’s changing needs over the years. We are here to help you learn and plan for your exciting family addition. Call us or come in today and let us help you get started on the financial planning for your expanding family!

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