Thinking About Starting a Family? Let's Talk Money!
Thinking about starting a family? Congratulations! Starting a family is one of life’s most joyous milestones. The excitement of expecting a new addition brings about dreams of future moments filled with love and laughter.
However, amidst this excitement lies the critical task of financial planning. Financial stability forms the bedrock upon which you can build those happy memories, ensuring that your new family starts on solid ground.
The Excitement and Importance of Financial Planning
Welcoming a new child into your life is an exhilarating experience, filled with anticipation and joy. Amidst the thrill of preparing for your baby's arrival, it's important not to overlook the financial responsibilities that come with starting a family. Incorporating another human being into your family is going to be expensive, so it’s important for new or prospective parents to consider their financial planning.
While it might not sound as fun as picking out a giant stuffed bear for the nursery, understanding the financial implications and having a financial plan can make a big difference for your new family. The right financial planning ensures some extra peace of mind and lays the groundwork for a solid financial future for your growing family.
The Costs of Raising a Child
Kids are expensive, as any current parent can attest to. From diapers and childcare to school supplies and possibly college down the road, the costs can add up quickly. And that’s not even touching the increase in medical bills and insurance.
According to the U.S. Department of Agriculture, the average cost of raising a child from birth to age 17 is estimated to be around $233,610. While the actual number will vary based on your individual circumstances, understanding these costs upfront can help you make informed decisions and plan effectively.
Financial Changes and New Expenses
Starting a family often brings significant financial changes, including managing reduced income during parental leave and accommodating increased expenses. Some key examples include:
- Baby Supplies: Essential items such as diapers, clothes, bottles, car seats, and strollers can quickly add up.
- Childcare Costs: Unless you have family members willing to provide free care, you'll need to budget for childcare expenses.
- Insurance: Ensuring your child is covered by health insurance and possibly adjusting your life insurance to include your new dependent.
Tax Benefits and Financial Adjustments
Fortunately, there are tax benefits and adjustments that can help offset some of these costs. New parents may qualify for tax credits and deductions, such as the Child Tax Credit and Dependent Care Credit, which can provide significant financial relief.
Taking Control of Your Finances
Planning for a major life change is a great opportunity to get your finances in order. Creating a budget, saving money, and paying down debt before welcoming a child can set you up for long-term financial stability. It all starts with knowing where you are today and then crafting a budget that will see your entire family through every stage going forward.
Time to Get Your Finances in Order
Now is the perfect time to take control of your finances. Creating a budget, saving money, and paying down debt before welcoming a child can set you up for long-term financial stability. Here are some foundational steps to consider:
Creating a Family Budget
Establishing a family budget is essential for managing your finances effectively. Start by tracking your income and expenses to identify areas where you can cut back and allocate funds more efficiently.
You’ll also want to plan for those new expenses, whether it’s diapers, baby formula, car seats, etc. Prioritize necessary expenses and set aside money for future needs.
Setting Financial Goals
It’s not just about you anymore. There’s a whole group of people to fit into that paycheck every month. Define clear financial goals for your family, such as saving for your child's education, building an emergency fund, and planning for retirement. Setting specific, measurable goals can help you stay focused and motivated.
The Importance of Establishing a Family Emergency Fund
Life throws curveballs sometimes, and even babies can have surprises (hello, unexpected doctor visits!). Having an emergency fund is vital for new parents.
Aim to save at least three to six months' worth of living expenses in a separate savings account. It acts as a financial buffer, allowing you to handle unexpected costs related to your child without compromising your overall financial stability. Having this safety net can provide peace of mind and financial security.
Now Let's Talk Baby Costs
Babies are a lot of work and require a lot of extra stuff to keep them happy—and their parents sane! But that’s going to mean adding significant expenses to your monthly “outgoing” column, and being ready for that comes down to planning.
Plan for Parental Leave
When you first welcome your baby, you might need to take some time off work, which means less income. Factor maternity leave or paternity leave (or both!) into your budget. If you take unpaid leave from work, factor in the loss of income to your plans.
Protect Your Child with Health Insurance
Your new bundle of joy will need health insurance. You might also want to consider adjusting your life insurance plan. Build in a bit extra to budget for doctor visits, vaccinations, or medications if needed. These costs can vary depending on your health insurance plan but budgeting $50-$100 per month is a good starting point, and definitely discuss these expectations with your pediatrician.
Childcare Isn’t Cheap
Unless you have a built-in babysitter (like a super-helpful grandma, or baby’s fun uncle!), childcare can be a big expense. Even with family members pitching in, the daily care required for kids—especially little ones—can be expensive. Finding a sitter who you trust to keep your loved one safe and happy while you’re at work is worth the expense, but you’re going to have to plan for it.
The usual childcare options can include daycare, hiring a nanny, or even just paying for hourly babysitting. Costs can vary significantly depending on your location, type of care, and the child's age. Start researching options in your area early to get a more accurate estimate.
Even Baby Gear Essentials Add Up Fast
From bottles and diapers to cribs and strollers, there's a lot of stuff little ones need. While it’s all cute and adorable and even fun to shop for at times, there’s a lot to keep in mind, and those numbers can add up quickly.
Here’s a look at some of the most basic of necessities and a broad cost range for each.
Baby’s Daily Necessities
The daily maintenance of tiny humans can be just as expensive as taking care of the daily requirements of the full-grown variety. In fact, even just the cost of diapers alone can start to feel like a budget breaker.
The list of must-haves at home or on-the-go includes diapers, wipes, diaper rash cream, changing pad liners, diaper pail refills (cloth diaper users will have different expenses). Baby will also need shampoo, lotion, nail clippers, diaper cream, etc. And that’s all before the addition of toys and entertainment to help Mom and Dad find a moment of peace.
- The costs for these daily necessities can vary depending on brand and quality but budgeting $60-$90 per month is a good starting point.
Depending on your utilities, you can also expect a slight increase in electricity and water usage with a new baby. Budget an extra $10-$20 per month, just to be sure you can cover it.
Baby-specific Food Costs
Mac and cheese and chicken nuggets are a few years away for the little one, and don’t even think about trying to portion out a steak until those teeth grow in. In the meantime, you’ll need to budget for the necessities. Depending on the feeding method your family chooses, this could include bottles, nipples, bottle sterilizer, a breast pump and various breastfeeding supplies, or infant formula.
- Costs will vary but budgeting $50-$100 per month is a good starting point.
Baby Clothes Aren’t Just for Style
While baby clothes are small enough to fit on dolls, they can run the same in costs as the more grown-up versions that their parents require for work.
Plan ahead and get clothes in various sizes because babies grow quickly! They can also be messy, so don’t forget to add in costs for laundry detergent and baby-safe stain remover. You might receive some clothes as gifts but budgeting $30-$50 per month is a good idea. If you’re on a tight budget, consider looking for second-hand options to help fill the closet. Since babies grow fast, they often outgrow those cute onesies before they ever wear them out.
Sleeping & Safety
While babies will often be fussy sleepers, a crib that conforms to safety standards (usually consisting of a mattress, sheets, and blankets) will add to the success rate of getting them to slumberland consistently. A baby monitor, safety gates to prevent falls down the steps or stairs, electrical outlet covers, and cabinet locks all help ensure safe exploration when the family has their attention elsewhere.
- Costs can vary depending on style and brand but budgeting $250-$600 for a crib and mattress is a good starting point.
Don’t Forget Transportation
A new baby in the family might mean taking a good, long look at the car in your driveway. In addition to needing a family car instead of that sporty two-seater, you might need to consider the reliability and mileage of your current car.
If all your extra cash at the end of the month goes into the upkeep of a high-maintenance vehicle, or if there’s not enough room in the truck for the required number of adults and a baby-safe seat in the back seat, the new baby might mean considering financing a new car, too. If that’s the case, start looking for a trade-in sooner rather than later. (Stop in to ask us about auto loans to help out with the planning, too.)
It also goes without saying that a brand-new baby is too tiny to sit in the passenger seat on their own. The new family member will need an infant car seat, and possibly a stroller. Additional luggage for longer trips, accessories like a car seat travel adapter, and the all-important diaper bag for daily outings add to the list.
- Budget about $200-$500 for a new car seat and $100-$300 for a stroller as a good starting point. Costs can vary depending on the features you choose, the brand, and on the overall travel needs.
Aim for Simple Entertainment
An entertained baby is a happy baby, and enrichment helps their minds develop well. That means buying an assortment of toys, books, and playmats for safe play in any environment. Additional technology and subscriptions can sneak in for the baby just like they do for the parents.
- All together, these costs can vary depending on how much you buy and how often, so budgeting $20-$50 per month is a good minimum.
The Baby Costs Extra
Added up, just these basics create a potential upfront cost of supplies that comes in around $500 to $1,400 for the big-ticket items. Even without childcare, the toll on the monthly budget can mean an additional $150 to $350 on top of your current expected monthly living expenses.
Remember that these are just examples, and actual costs will vary depending on your location, lifestyle choices, and brands you choose. While shopping at second-hand stores, hosting a “baby shower” party, and other donations from family and friends can help significantly, it’s a good idea to make sure you can cover the expenses ahead of time, without relying on outside help. It’s important to factor in your current living situation when crafting your budget to grow with an additional person.
Planning for the Future
As you can see, starting a family is about more than just onesies and bedtime stories. It's about building a secure future for your little one. There are many ways to plan ahead, so let’s look at just a few.
Seeking Financial Guidance
Consider consulting with a financial advisor or tax professional to explore your options for saving money before and after your child’s arrival. These professionals can provide personalized advice and help you create a comprehensive financial plan tailored to your family's needs.
We might be able to help, too. Consider the monthly expenses you currently have, like your home mortgage, car payments, or any fees associated with your accounts. There may be ways to refinance your loans to lower interest rates and trim some costs, or even switch to family savings accounts with bonus features that earn more. These simple solutions can help pay off in the long run, so stop in today to see what you may qualify for.
Protecting Your Family’s Financial Future with Insurance
Ensure your family is protected by evaluating and updating your insurance policies. Consider the following types of insurance:
- Health Insurance: Make sure to update your family policy to cover your new arrival.
- Life Insurance: Provides financial support for your family in the event of your passing.
- Disability Insurance: To cover income loss due to injury or illness.
- Homeowners/Renters Insurance: To protect your home and belongings, and your monthly budget in case of disaster.
Investing in Your Child’s Future: Education and Healthcare Savings
Seems crazy to think so far ahead, right? But even a little saved now can grow into a big chunk of change for your child's education later. Planning for your child’s future financial needs is essential. There are options available to help you save both for your child’s educational needs as well as any health expenses along the way.
- 529 Plans: Tax-advantaged savings plans for future education expenses.
- Health Savings Accounts (HSAs): Tax-advantaged accounts for medical expenses.
Long-Term Goals and Retirement Planning for New Parents
Don’t forget about your own future! Think about retirement planning and how you can continue to save for your own golden years while raising your little one. You’ll also want to consider making a will or setting up a trust for your children.
While one hopes to never need it, having a plan in place in case of emergencies can make life a bit easier should something happen down the road. It will also ensure that any minor children are taken care of should something happen to you.
Putting It All Together: Creating Your Family Financial Plan
Ready to map out your financial future as a family? To help you create a comprehensive financial plan tailored to your family's needs, follow these steps:
- Assess Your Financial Situation: Review your income, expenses, and debts.
- Set Clear Financial Goals: Define short-term and long-term objectives.
- Create a Budget: Allocate funds for necessary expenses and savings on a monthly and yearly basis.
- Build an Emergency Fund: Save three to six months' worth of living expenses.
- Consult Professionals: Seek advice from financial advisors and tax professionals.
- Review and Update Your Plan: Life happens! Regularly revisit your plan to ensure it aligns with your evolving needs and goals.
Don’t Forget to Financially Plan for Your Family
Starting a family is an exciting and rewarding journey that comes with its own set of financial challenges. By taking proactive steps to plan and manage your finances, you can ensure a secure and prosperous future for your growing family.
Remember, effective financial planning today sets the foundation for a brighter tomorrow. Embrace this journey with confidence, knowing that you are taking the necessary steps to provide for your family's future.