Preparing for a baby doesn’t just stop at picking the name or setting up the nursery. It also requires a lot of financial planning.
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The estimated cost for raising a child from birth to age 17 is an average of $233,610, or $12,189 a year, for a middle-income family (with two children) in the US, according to data published in a 2017 US Department of Agriculture report.
“It’s easy to get swept up in the emotions of the pregnancy and ignore practical matters,” said Deborah Meyer, a certified financial planner and CEO of WorthyNest. “It’s never too soon to begin financially planning for a new baby.”
Here are four money moves you can make to prepare for your little bundle of joy:
1. Create a baby budget
There’s no getting past the “B” word when expecting a child. In fact, having a budget is one of the most important money steps you can take.
When creating a budget, be realistic about your expenses and keep it flexible. Researching ahead of time what certain things will cost can go a long way.
Childcare is a good starting point, since it’s often the largest expense on many family budgets.
According to a 2019 report by Center for American Progress, a progressive think tank, the cost of childcare averages 14% of the incomes of middle-class working American families with two children who are earning $50,000 to $100,000 a year. It’s more than double that percentage for a lower-income family, taking up an average of 35%.
Also, make sure to factor in both pre-baby and post-baby expenses. That could include out-of-pocket medical costs, prenatal classes, as well as baby-related items like diapers and car seats.
In many cases, family members or friends may help supply basic items, such as clothes, or other big-ticket baby items, like a stroller. Asking for hand-me-downs is another way to save on clothing, as well as items like toys and furniture.
However, even if those purchases are covered, Meyer suggests allocating for at least $150 a month in additional baby costs.
By doing so, you can provide your family a healthy financial cushion to cover other recurring or unexpected expenses associated with a baby.
2. Talk money and make a plan with your partner
Many companies offer a form of maternity or paternity leave. You should check with your employer on the type of family leave plans they offer and the details of your healthcare coverage. Then, talk to your partner about next steps.
“Start to wrap your mind around what those early months would potentially look like,” said Danna Jacobs, a certified financial planner and founding partner of Legacy Care Wealth.
Decide if one or both parents will be staying at home or working. From there, you can get a better sense of available income and household cash flow during the first couple months of your baby’s life.
You should also consider your household’s retirement contributions and whether you’ll need to cut back or increase that amount based on your budget. Prioritizing paying off high-interest debt, such as a credit card, and finalizing any plans to fund a 529 savings plan for your newborn are other essential steps you should consider.
In cases where discussing finances with your partner proves to be uncomfortable or difficult, try working with a financial professional, like a financial adviser or coach, to keep you on track with financial goals and your budget.
“Navigating money conversations with your significant other may be awkward, even when you’re not expecting a baby,” said Meyer. “A good financial coach or planner can be helpful to ease the tension if every money conversation ends with an argument.”
Working with a financial professional can also help you navigate major lifestyle changes, such as getting a safer car or moving into a bigger space to make room for a newborn.
3. Secure more savings
Having adequate savings can set your new family up for financial success.
Usually this takes the form of an emergency fund, which financial experts suggest should consist of anywhere between three to six months’ of living expenses.
Add a baby into the equation and that can be more than you needed before. Since your expenses will be shifting, you’ll want to account for that by increasing the amount of your emergency savings.
To come up with a suitable target number, account for monthly expenses such as daycare, baby food, mortgage and car payments.
“It’s always good to get an idea of what that number looks like and start saving for it in advance before you have the additional cash flow hit from baby expenses,” said Jacobs.
4. Maintain a thrifty mindset
In addition to asking for hand-me-downs, other ways to save can include nursing (if possible), opting in for multifunctional baby gear, buying secondhand items or clothes, making your own baby food, and having relatives babysit rather than paying for outside childcare.
Another way to save is to seek out other parents for advice.
“The biggest mistake is not speaking with other parents of toddlers,” she said. “They are slightly past the sleep-deprived newborn stage of parenthood but close enough to it to remember the extra financial expenses associated with a baby.”