If you’re thinking about starting a family or already have a baby on the way, you’re more than likely preparing yourself for months of sleep deprivation, filthy diapers and lots of kid shows.
You’ll also probably flinch every time someone tells you how much a baby will change your life. Well, they’re right. It will. Preparing for Parenthood isn’t just about tiny clothes and breathtaking ultrasound pictures; in fact, it involves a lot of financial preparation as well.
The average cost of raising a child from birth until 18 in the U.S. is approximately $245,340 (or $304,480, depending on inflation). This includes the cost of clothes, food, healthcare, housing, transportation, toys and other entertainment.
Prices will, of course, vary depending on the location, and some costs – such as housing and/or transportation – are things that are usually already paid for before the child even arrives. That being said, there’s little doubt your biggest expense will be child care (assuming both parents continue working) and that can run close to $1,000 a month in bigger cities like Los Angeles.
The bottom line: There are many other costs that can arise, and that’s why it’s difficult for parents to put a price on parenthood. Creating a plan, however, can help you manage new expenses and responsibilities.
Take advantage of this time before the baby arrives to help get things in order. If you and your spouse discuss and agree on certain expectations, goals, and strategies now, you can avoid financial problems later on down the road. After all, you don’t want your child to feel like they’re a burden in your life.
- Make Room for Your Baby in Your Budget
The startup cost of having a child might be really steep, but don’t overlook the extra day-to-day costs your little bundle of joy will bring: Babysitters, clothes, diapers, food, health insurance, and of course, utility bills since you’ll spend more time at home.
As a rule of thumb, you should plan on spending at least an extra $200 a month for total expenses. If you find that you need to pay more for child care, a bigger home or a new vehicle, then you’ll need to budget more. It’s a good idea to examine your budget to help identify certain areas you can cut back on to make room for extra expenses.
- Pay Off Debt
If you pay off your debt before the baby arrives, then the money you were spending on monthly payments can now be used for taking care your baby – not to mention that you’ll also be creating a stable financial environment. For instance, let’s pretend that you have a $3,000 balance on your credit card. That’s about 18 percent interest. If you’re paying the bare minimum ($60 a month), then it’ll take you about 36 years to pay it off and cost you close to $8,000 in high-interest rates. If you’re able to pay $300 a month, however, you’d have that debt paid off within a year and only pay about $275 in interest.
It’s also a good idea to see where else you’re spending your money and make getting out of debt your top priority. If you’re unable to pay off all your debt before the baby arrives, try to pay them down as much as possible. The sooner you start working on this, the easier things will be later on down the road. Once is the baby is born, continue to make smaller payments until your budget is stable enough for you to get back on your feet.
- Let Your Boss Know
It makes sense for most parents to hold off on telling their bosses about their big announcement until after the first trimester when the risk of miscarriage goes down. However, you don’t want to wait until you’re showing to let your colleagues know.
Different circumstances, of course, may dictate a different strategy. For example, some women might experience different illnesses during their pregnancies stages, making it practically impossible to drive to work. Fortunately, if you have a supportive boss, they should be able to understand.
If for some reason you’re worried that your employer might not welcome the news, consider holding off your announcement until after a salary performance review. That way you can make sure that the news doesn’t influence how you’re treated. You can also make the announcement after completing a big project at work to show your boss and colleagues just how valuable you really are to the organization.
- Start Shopping Around for Life Insurance
You probably didn’t feel the need for life insurance when you were single, or even as a couple; but now that you’re going to be a parent and have a family that relies on you for financial support, it’s a must.
When do you need life insurance?
Well, it all depends on the financial needs of you and your family. When evaluating your options take into consideration your financial obligations.
Generally speaking, you should buy enough coverage to equal anywhere from 8 to 12 times your income. If you’re the family’s main provider, stick to the higher end life insurance plan. The low figure might be only enough if both spouses are working full-time jobs. Even stay-at-home parents need their own budget plan for child care in case of an unexpected death in the family.
Even if you’re budgeting wisely and taking advantage of different savings plans, you’ve got a lot to plan for when it comes to your money and your kids. Don’t worry: being pregnant won’t influence the rates since the risk of dying in childbirth is much lower than it was a hundred years ago.
Most parents have no idea what they’re getting themselves into financially when they have children. If a baby arrived with a bill, you’d be worried too. Yes, the process is daunting; and yes, being a parent requires a lot of love, nurturing, and of course, money. If it’s done right, however, the experience can be the most rewarding thing you’ll ever face.
Thank you for reading the article. What are some other ways parents can plan their budget accordingly when expecting a child? Don’t hesitate, leave a comment below.