And Baby Makes Three: Financial Planning Before the Little One Arrives

Dreaming of the pitter-patter of little feet in your home? If starting a family is in your near-term plans, now is a good time to take stock of your overall financial situation to determine any changes you may want to make before the addition of a new family member.

Babies are irresistible, and there is no shortage of adorable baby-related items, from clothing to accessories, that add to the excitement of welcoming a newborn. But children are also quite expensive. Managing expenses as a couple can seem complicated already, and while starting a family is one of the most exciting times of your life, it can also be one of the scariest when it comes to finances.

According to recent data published by the U.S. Department of Agriculture, the average cost of raising a child born in 2017 through the age of 17 was $233,610, not including the cost of a college education. While childcare costs vary significantly, depending on factors such as where a family resides and whether they have multiple kids, no matter how you look at it, providing for the needs of children is an expensive proposition. It makes sense to get a solid hold on where your finances stand and what you’re already spending in an average year, so you can learn how your expenses are likely to change with the addition of a child.

Most families with children spend a minimum of $13,000 in child-related expenses each year. Knowing this, a good starting point for budgeting with starting a family in mind is to look at what your typical pre-child expenses are. Then determine if you already have that extra money on hand, or if you need to make changes or cut costs in some areas.

It’s also important to consider the expenses related to children vary based on their age. Caring for a baby means necessities: from diapers and formula to daycare for working parents. While the expenses of older children shift toward things like after-school care in working parent families, to extracurricular activities like sports and eventually to higher education for older children.

Following are some expenses to consider when budgeting to start a family:

  • Healthcare costs. From the healthcare expense of delivery for a newborn baby, to ongoing wellness visits and any health issues that arise in between. A newborn should be added to your insurance policy within 30 days of birth, otherwise an insurer may not cover delivery costs. Keep in mind that adding a child to your insurance policy will increase your monthly premium, and ultimately, impact the take-home amount of your monthly paycheck. 
  • Food costs. From formula to school lunches to everything in between, the amount you will spend on food will vary depending on where you live and the ages and needs of your child or children.
  • Insurance. Make sure you have life insurance and disability insurance in place before a child is born or adopted. This applies to stay-at-home parents as well as working parents, given the reality that if something were to happen to a stay-at-home parent, it would suddenly require covering childcare expenses.
  • Clothing and other supplies. With the latter ranging from necessities, such as car seats and highchairs, to toys, and a large array of sports or school supplies for older children.
  • College. Although this may seem like a crazy thing to begin planning for before a child is even born, the reality is that the sooner you begin setting money aside in a 529 plan or other long-term investment vehicle, the better off you will be by the time the money is needed, given the power of compounded growth.
  • Miscellaneous Expenses. No matter how well you prepare, or how thorough you are in determining the costs you will face as a parent, there will always be unexpected costs that will arise.

Having an understanding of all the changes that accompany parenthood—financial and otherwise, is a good place to begin your family planning. Check out our tips and tools for creating a budget.

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