The story is always the same.
You’re married for a few years and your parents eventually ask the question: “So when are we going to get a grandchild?”
My response was, “When we can afford one.” And the quick comeback was always, “Oh honey, you can never really afford one, so there’s no reason to wait.”
Granted, most grandparents-in-waiting aren’t being objective when it comes to the question of being financially ready for children. But to better understand what being financially prepared for a new child actually implies, you would do well to read through the following advice.
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The True Cost of a Baby
Like many pre-child couples out there, my wife and I were basically ignorant about the overall cost of the birthing process and the yearly expenses associated with a new child.
Not only that, but we were really unprepared about how much a baby would affect our overall financial situation.
“Childbirth and prenatal health care cost averaged $7,090 for normal delivery in the US… [The] US Department of Agriculture estimates that a US family will spend an average of $11,000 to $23,000 per year for the first 17 years of child’s life on a child born in 2007.” – Wikipedia
On the surface, these amounts seem a little high. But after 3 years into parenthood, I can tell you that it’s not that far off. Sure, it varies by state, by hospital, and by personal preferences. But the time and effort you put into researching new-baby costs (immediate, monthly, and yearly) will be greatly rewarded.
Before Labor and Before Delivery
The costs associated with pregnancy and with the delivery process aren’t some big secret, you just need to know where to look and who to ask. So how do you find out?
Ask the People You Work With and and Family/Friends – the best place to find out about pregnancy and delivery costs are from people in your life who have recently had a child. Those who live in and around your community probably have a wealth of knowledge when it comes to local hospital and doctor fees.
And think about this, a fellow employee who has a new baby can be a great source information about your employer’s health care coverage. It will help you plan and prepare if you get a good estimate about your out-of-pocket expenses.
Study Your Current Health Insurance Coverage – The time you take to study up on your health care coverage will be very beneficial. No one likes surprises when it comes to medical bills. Although it might not be exciting, take some time to fully read and understand the charges and percentages that your insurance provider will cover.
My wife and I were allowed to switch our coverage plan after 2 months into her pregnancy. The new plan was more beneficial to our new situation, helping to lower the deductible and increasing the amount that would be covered. Of course, you should check with your provider before you attempt any such transition.
Call a Doctor – Don’t be intimidate about asking your doctor to give you an estimated cost of pre-labor office visits, hospital charges, and the delivery procedure. Bring a copy of your insurance, and the office assistant should give you a more detailed estimate specific to your coverage.
How Much Does a Baby Cost in the First Year
After nailing down preparation for pre-labor and deliver/hospital costs, you should consider examining the amount of money needed to get through your baby’s first year. Believe it or not, there are plenty of tools to help you get through this.
Baby Center Calculator – One of the best tools that I’ve found for approximating year-one costs is the cost calculator at BabyCenter.com. This tool takes into account items such as basic baby necessities (like beds, clothes, bottles, etc.) and even short-term or long-term income loss.
To Be Ready for a Baby, Take Action
You’ve put in the research time and developed a good estimate of costs associated with your new baby. It’s time to strategize about your finances.
Save Up – One of the best ways to prepare your finances for a new child is to save up enough money so that the pregnancy and delivery don’t drag you into debt. Take your total cost estimate from conception to year one and set a goal to achieve that amount.
Depending on your current income and financial situation, if that goal is too lofty, at least try to save up for the estimate pertaining to the delivery and doctor’s visits.
You can start by dividing your total estimated costs by 10 whole months and save that amount each month as you approach delivery. If you’re already pregnant, simply divide the estimate by the # of whole months there is until your due date. Online savings accounts are great for this type of planning.
Reduce Your Excess Debt – Expecting a new child gives you a chance to re-prioritize your life and your expenses. Eliminating debt on your credit cards and student loan debt will allow you to breathe a little easier during this time of joy. How great would it be to start your new life with a new little one by living debt free?
9 Expert Tips for Preparing for a Baby
Kimberly Palmer, author of Generation Earn: The Young Professional’ s Guide to Spending, Investing, and Giving Back and the Alpha Consumer blog at USNews.com shares nine more tips for preparing for a baby.
Thinking about becoming a parent? Most of that decision has nothing to do with money, but getting financially prepared can make welcoming a newborn into your home a little less stressful. You’ll still have to learn how to cope with sleep deprivation and diapers, but can worry a little less about affording it all.
The Waiting Game – Wait until after the birth to purchase toys and gadgets (such as an Exersaucer or Jumperoo) that aren’t usually used until babies move past the newborn phase. You might find that your baby likes only certain kinds of toys, or doesn’t like to be constricted in certain contraptions. By waiting, you’ll be sure to only buy things that you actually use.
Friends and Family Plan – Borrow as much as possible from other parents, including used maternity clothes and baby gear. Your friends might be glad to put their items to good use, and you can pass on the favor when you’ re all done.
Just make sure the product hasn’t been recalled. The Consumer Product Safety Commission has recalled a slew of products recently, from sleep positioners to cribs to infant slings. In fact, the commission recommends against using drop-side cribs altogether, so spring for new purchases whenever safety is a concern.
Community Trust - Sign up for your local community email group through freecycle.org or use craigslist.org to pick up used items from other parents in your area. Tips for finding discounts can also be found at babycheapskate.com.
Work Affects – Familiarize yourself with your workplace’s maternity and paternity leave policies. Some people are shocked to discover than instead of the two-month paid leave they had planned, they’ ll be forced to take unpaid leave. Federal law doesn’t require employers to provide any paid leave at all.
Health Matters – Find out what it would cost to add an additional dependent to your health insurance. You might need to plan ahead to afford those extra payments.
The 10K Mark – Before the baby arrives, save at least $10,000 for baby-related expenses during the first year. It sounds like a lot, but can make it easier to absorb all those extra costs.
Practice Makes Perfect – Practice living on $1,000 less each month, which is the average cost of child care. Or, if either you or your spouse plans to stay home, practice living without that second income.
Think Big (or Not) – Anticipate any major purchases, such as a new home or new car, that you will need to make before welcoming home a new member of the family. But don’ t feel pressured to live in a bigger home; plenty of families turn small apartments into a cozy and welcoming family spaces.
Where There’s a Will – Update (or create) your will and life insurance benefits. It’s no fun to talk about, but important to guarantee the financial security of your family. Check out these other money moves to make when you have a baby.
My Final Thoughts
Remember, you have 9 months to prepare for your new bundle of joy. Don’t worry if you didn’t start early enough. Focus on becoming financially fit from this point forward. Take the time, do the work, and reap the benefits of financial preparation.