Baby on the way? No need to give birth to financial woes
Adding a child to your family can bring joy, excitement — and a boatload of bills.
A middle-income, marriedcouple family will spend roughly $233,610 (in 2015 dollars) to raise a baby born in 2015 from birth through age 17, according to the most recent U.S. Department of Agriculture report on child-rearing expenses.
Families with lower incomes are estimated to spend $174,690, while those with higher incomes are slated to put out $372,210 from birth through age 17.
Andrea and James Kunk of Dayton, Ohio are among the many who are very familiar with the costs of raising children. Aware of the potential financial strain, the duo waited until their early 30s to have their first child.
“We wanted to establish our careers and build a strong financial foundation before the kids came along,” says Andrea, a CFO at Peerless Technologies, a defense contracting company that provides IT, cyber, and engineering services to the federal government.
Andrea, 36, and husband James, 37, now have daughters Annabelle, 3 and Lillian, almost 11 months.
“It is absolutely critical that Five companies will take a look at prices, insurance and gas,” says Cynthia Boman Thompson, a certified financial planner and director of Financial & Accounting Services at staffing firm Cinder Staffing. “The costs will be substantial and you are providing the
financial safety and security that each child needs to thrive and grow.”
Here are five ways to financially prepare for parenthood: 1 Plan, and budget for, new expenses. A newborn is accompanied by expenses such as diapers, formula, clothing, toys and baby furniture.
Before their children were born, the Kunks “had a financial rhythm that included living below our means so we could add in the day-to-day expenses that babies bring without stretching ourselves,” Andrea says. 2 Review your insurance
coverage. “Get a handle on the finer points of your family’s health care, including maternity coverage, co-pays, deductibles, and what exactly your policy will cover,” says Samuel Boyd, a certified financial planner and senior vice president at Capital Asset Management Group.
“It’s especially important to not only review health care, but also short-term disability and life insurance policies to make sure the coverage is adequate,” says Sean Pearson, a certified financial planner and an associate vice president at Ameriprise Financial Services.
If a parent wants to leave work after the child is born, it’s important to review how that could affect health insurance, life and disability insurance as well as other potential benefits like 401(k)s, Pearson says. 3 Boost your emergency fund. This is a good time to stockpile some extra cash. Save at least six months of expenses, Boyd says. “At times of uncertainty cash is king,” he says. “From medical complications to reduced income from longer than expected maternity or paternity leave to unexpected purchases related to parenting, there is no substitute for cash on hand.”
Boyd typically advises new parents to budget an additional $15,000 into their cash flow for the first year of a baby’s life — and this excludes the cost of daycare. “House the funds in liquid, shortterm accounts that are easy to access,” he says. 4 Be careful with baby-related spending. Babies grow quickly, so “investing in too much clothing can leave you with a lot of unworn, expensive outfits,” says Cinder Staffing ’s Boman Thompson.
Buy diapers in bulk, shop for furniture that does double duty, such as a dresser with a changing table, accept gently-used clothing and borrow books instead of buying them, she says. 5 Plan ahead for education costs. As soon as her kids were born, Andrea set up 529 college savings plans, which are investment accounts designed to help families set aside funds for college.
“I really believe in the importance of education and financial planning early,” she says. “A dollar invested today is worth much more than a dollar invested in the future,” she says.