Be Financially Prepared When Baby Makes Three

Diapers, formula and day care – the list of expenses new parents incur goes on. And infancy is just the beginning. The U.S. Department of Agriculture estimates that the cost for a middle-income family to raise a child through age 18 has increased by 40 percent over the decade from 2000-2010, to a startling high of more than $226,000. 

If you are among those entering the world of midnight feedings and teething rings, here are some pointers to help prepare for the financial aspects of your joyful journey. 

Review job situations and income.

Before you decide whether to leave the workforce or continue working once the baby arrives, consider your overall financial picture. Calculate the cost of childcare and weigh that against your income. Don’t forget to factor in the loss of retirement plan contributions and future career advancement opportunities as you make your decision. You may consider arranging a more flexible schedule or part-time employment instead of giving up work completely, which would allow you to spend more time at home and also keep your career intact. 

In the past it usually made more financial sense to rely on mom as the primary caregiver, while dad provided the family’s income, but with women earning more money and having more opportunities in the workplace, that may no longer be the case for all couples. If you and your spouse decide one of you will become a stay-at-home parent, take a look at both incomes and future career potential before deciding who might assume the primary role at home. 

Change your spending habits to free up cash.  

A childless lifestyle may have let you take an extra vacation or treat yourself to regular nights out. While you may not need to give up every luxury, consider adjusting your living standard to accommodate the extra expenses you will soon have. Most importantly, set realistic expectations about the costs of parenthood and devise a sound savings plan to keep your finances on track and your family protected. 

Obtain cost-effective insurance coverage. 

Your newly added responsibility makes life and disability coverage even more important. An accident or illness that keeps you from working or causes your premature death could be catastrophic for a growing family. Look into affordable protection that will help your loved ones maintain their lifestyle in an unexpected tragic event. 

Understand your employee benefits.

Read your health insurance policy and inquire about how much you will need to pay for prenatal care and delivery of the baby. Anticipate your out-of-pocket maximum so you can budget for extra health care costs without any surprises. 

If you’re a soon-to-be mother, find out if you are entitled to a paid maternity leave – or paternity leave if you’re going to be a father. If you plan to take an unpaid absence from your job, or will only receive a partial salary through your employer or disability insurance provider, prepare a budget for your expenses with your reduced income in mind. 

Start a college savings program early. 

The College Board reports that a four-year education at a private, four-year college (including tuition and fees) currently costs about $28,500 per year. With that number rising steadily, (about four percent from 2010 to 2011) it’s easy to see the urgency of establishing a college fund while your child is still in the crib. If you get started right away, your time frame allows for an aggressive investment strategy for the first several years to stay ahead of rising tuition costs. 

Don’t ignore your other financial goals.

With all the financial preparation for baby, it’s easy to forget about your other important long-term goals like saving for retirement. If you are not already doing so, consider making systematic contributions to a 401(k), IRA or other retirement plan. Also take time to review your long- and short-term financial goals as some may change after having a baby. If you need to reprioritize, make sure to also adjust your investment allocations and savings strategy appropriately.   

Planning for multiple goals can seem daunting, especially if you try to do it on your own. A knowledgeable financial advisor can be a valuable asset as you sort through your many options for college and retirement saving. 

Even though parenthood may seem financially overwhelming, most agree that the joy it brings is worth the cost. While you adjust to your new role, remember to keep things in perspective and plan for the unexpected. That sleepy smile and those first wobbly steps are well worth the financial sacrifices you’ll make.    

Rob Davis lives in University Place with his wife Lorri and sons Wesley and Parker.  With over 34 years of experience, he is a CERTIFIED FINANCIAL PLANNER™ practitioner and is licensed/registered to do business with U.S. residents in the states of Washington and Idaho.  

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