When to start a family is such a personal decision that it might seem strange to consider money as a factor. But in addition to being adorable bundles of love, babies are also incredibly expensive. The US Department of Agriculture estimates that a middle-income husband-wife family will spend $26,000 on their child during the first two years of his or her life. If becoming a parent also means that you or your spouse will scale back your work hours, those costs can become even harder to bear.
While you don't need to wait to have a child until you have an extra 40 grand lying around, you will be on financially sounder ground if you do some advance planning for how you will absorb the financial strain of a brand new little person. Prepare yourself for the huge step of parenthood by asking yourself a few questions.
How will my work and income be affected?
Future mothers who plan to return to work after the birth of a child should thoroughly research and understand their employers’ maternity leave policies. Know how much paid leave is offered and how much time you can afford (and are allowed) to take off. Men should research their employers’ paternity leave policies. Some new parents are fortunate enough to be able to work part-time or become self-employed so they can enjoy a more flexible schedule. Some new fathers scale back their hours to spend more time with their families, while others feel increased pressure to earn and, therefore, work longer hours. Be sure to ask about your employer’s family-related benefits, such as childcare flexible spending accounts, which can help pay for child care costs with up to $5,000 of pretax dollars.
What type of child care will I need?
Unless you or your spouse plan to leave the workforce, you will need to arrange for child care. Decide which of the many options are right for you, including day care centers, in-home daycares, or, if you have sufficient room in your home and your budget, an au pair or live-in nanny. Parents with flexible work schedules can take advantage of baby-sitting co-ops, where a group of parents coordinate to watch one another’s children at different times of day, or college-age babysitters, whose schedules are also flexible. Keep in mind that the average cost of child care is approximately $1,000 per month.
How much savings should I have?
Try to have some savings accrued for baby-related expenses during the baby’s first year. It is easy to feel like you need a new $800 crib, stroller, and all-organic layette, not to mention a four-bedroom house with a yard big enough for a playground set. But many items, such as toys and furniture, can be purchased used at a fraction of the cost. (Cribs and car seats should be purchased new for safety reasons.)
If you will need child care, a good goal would be to save enough to cover child care expenses for the first year. While this is an ideal goal and may not be possible for many, having at least some savings will help reduce financial stress once the baby arrives, when you will likely have hospital bills related to the birth, new healthcare costs, baby food, diapers, clothes, and the myriad of other baby-related expenses. Additionally, if you plan to take unpaid leave, try to save enough to cover your usual expenses during that time. If you plan to stop working, then practice living without that income before the baby arrives. And remember that even the most organized family will run into unexpected expenses.
Will I need a will and more life insurance?
No one likes to talk about the potential for their own death, but parents have a responsibility to have their life insurance, wills, and other estate plans in place to care for their children’s needs in the event that they cannot. Because the chance of tragedy is so low, term life insurance for twenty-, thirty-, and forty-somethings is relatively affordable, and you can usually lock in low rates over the next ten, twenty, or thirty years. You should also make sure your assets and financial accounts are described in a document that someone you trust could find if necessary.
Once these important financial steps are addressed, you will be in a better position to focus on the most important thing—your family.