Financial Planning for New Parents
Plenty of my friends got married in recent years and are now having kids of their own -- including my sister who is having a baby this spring! For all of those new parents, there is a LOT to think about, not the least of which how a child will impact your finances. Having a baby is expensive...no matter how you look at it. Raising a child can be as expensive as paying for a house, yet at least with a house you have 30 years to pay it, with a child you have 18 years, sometimes a little longer.
This article from the Investopedia advisor network is really helpful in breaking down the major expenses for new parents, as also giving you advice on how to prepare and pay for them. For more information, be sure to check out Investopedia by CLICKING HERE.
Kids: What do they Cost?
The average statistics for raising a child in America are scary. However, if you are aware of the costs going in, you can plan for them to make them more affordable. It's normal to feel uncomfortable about the costs associated with having a baby; the costs below are just the major ones but there are tons of smaller ones that add up fast (diapers, anyone?). Preparing your budget now will mean greater financial comfort in the near future.
$30,000 - average cost for standard delivery and newborn care without insurance.
$3,400 - average cost for standard delivery and newborn care with insurance.
$25,844 - average cost in the state of New York of having your child in a day care facility, according to Child Care Aware.
$21,105 - average cost in the state of New Jersey of having your child in a day care facility, according to Child Care Aware.
With all this in mind, you should take the following next steps:
1. Set Goals - If you had the financial goals discussion with your spouse when you got married, now is a good time to revisit them. Priorities will definitely change with a baby on the way, especially when it comes to big expenses. You may have been working on a down payment for a house and retirement, now you have college savings thrown into the mix. Take some time to re-prioritize and don't stretch yourself too thin. Stress is "no bueno."
2. Create a Budget - Our Macro Money entries can really help with this too, but if you don't have a budget prepared yet, you will definitely need one going forward. Next you'll need to think about money allocated to different categories. There will be lots more on-going costs, such as diapers, formula and child care, as well as one-time costs such as furniture, a stroller and a car seat. You probably won’t go out as often as a new parent which should mean less spending on travel and entertainment. Family will often want to buy the bundle of joy gifts, so take them up on the offer and create a gift registry. It will make it easier for them to know what you really need. Now is also the time to figure out the cost for child care in your area -- so do some research. Taking the time to master cash flow is important when dealing with a new budget, so give yourself at least three months once baby has arrived to adjust.
3. Increase Your Emergency Savings - While many people neglect emergency savings, you will definitely need some now. Especially thanks to the "brilliant" American system of no-paid leave for parents, you will need to have money to pay for things while on maternity leave and potentially longer if the mother experiences medical complications from giving birth.
4. Plan for the Future - Once your bundle of joy arrives, you should do a few important things: consider more life insurance and compare costs to see what coverage is right for you. Draft a will: if you didn't do that after you got married, do it now. Then call an attorney to make sure it is valid and enforceable.
Good luck to all the new parents out there!