When you find out you’re going to have a baby there are so many things to do. There are books to read, classes to attend, a room to prepare, and clothes and supplies to purchase. But many parents-to-be don’t properly weigh the financial impact of a new child.
A new family member comes with additional expenses; the U.S. Department of Agriculture estimates that parents will need to spend about $12,000 to $14,000 annually on a child from birth to age 17. However, parents facing these increased costs cannot afford to start spending more than their income or overly sacrifice their retirement savings just because there’s a new baby.
As a parent and a wealth adviser, I understand the need to balance the costs of a new child with other financial priorities. For those couples expecting to grow their family, here are five recommendations to keep your financial house in order:
1. Determine the medical costs of having a baby. In the next 10 months there are going to be a lot of doctor’s visits, and you should plan accordingly. Are your obstetrician and pediatrician in your health insurance network? What is your deductible, and what is your level of coinsurance? If you’ve had a fairly healthy life, the next 10 months may be the most expensive period for medical costs you will have ever experienced. You need to make sure you, your cash flow and your checking account know what to expect.
2. Understand how parental leave works. If you are an employed mother-to-be, how much time will you get for maternity leave? Will you remain salaried or will your disability benefits kick in? If you are an employed father-to-be, does your employer offer you paternity leave? If not, you may want to go ahead and limit your schedule around the baby’s due date. As a father myself, I can tell you that you’re going to want to be a part of the first special days, and as a husband, I can tell you that your wife’s going to want you to be there, too.
3. Develop a post-baby budget. There’s about to be another mouth to feed, another body to clothe, and an endless need for diapers and wipes. And if child care will be required, the Economic Policy Institute estimates infant care in Georgia will cost you around $7,600 per year, but this could be higher or lower depending on where you live. You’ve also got to consider how your health insurance premiums will change to include another family member and how your income will change if Mom or Dad decide to stay home. In happier budgeting news, you may be like my wife and me and quickly discover that your social, travel and dining-out expenses decline dramatically with the arrival of a little one, helping to offset some of the new expenses.
4. Boost your emergency fund and consider buying some additional term life insurance. With more at stake, you need to build up your financial safety net. Work towards building up a cash emergency fund equal to at least six months’ worth of your post-baby budget living expenses. It may also make sense to purchase additional term life insurance or increase the amount of your current coverage. If something happens to Mom or Dad, the surviving parent will likely now need more insurance proceeds to make ends meet or provide for additional child care.
5. Write or update your will. I’ve found that having a child is often the catalyst for people to execute a will and name a guardian. If you don’t have a will, now is the time to get one; if you have a will, update it. A will can be written in contemplation of a child or future children, and you will have more spare time to give your estate plan the time and careful consideration that it deserves before you re-learn all of the nursery rhymes!
Tom Presley is a Wealth Advisor for Brightworth, an Atlanta-based wealth management firm.