Ready to Start Your Family? Here’s How to Financially Plan for a Baby
Choosing to start a family may not feel like a financial decision. And you shouldn’t make that decision solely based off what your money situation looks like — there’s a lot more that goes into this big life change.
But you shouldn’t ignore the practical realities of having a baby. The USDA estimates that raising a child to the age of 18 will cost the average family $233,000.
That total doesn’t include calculations for pregnancy- or college-related costs. This is a significant financial commitment for most families. But before you decide to hold off on having kids, know that you can financially plan for a baby ahead of time so that concerns around money don’t hold you back from the life you want.
Start with What’s in Your Control
Don’t get lost in the things you can’t control. Instead, focus in on what you can do now to help protect yourself later. This means reconfiguring your budget so you can afford the items and services you know you will need.
Check with your medical insurance provider and know what you’ll be expected to pay throughout pregnancy and birth. Calculate costs for adding dependents to your existing plan or explore other medical insurance plans that could save you money without sacrificing coverage.
If you need to save up to cover those costs, create a savings plan now before you’re expecting. Break the total number down into a monthly goal that you can manage with your existing cash flow.
Use the Right Savings Vehicles to Help Plan for a Baby
You might want to save these funds into a Health Savings Account (HSA) if you have access to one. You’ll need a high-deductible health plan to qualify. The money you put into your HSA is tax-deductible. So is any money you earn in the account, and even the money you withdraw is tax-free if you spend it on qualifying medical costs.
Unlike a Flexible Spending Account (FSA), your savings rolls over year to year (it’s not a use-it-or-lose-it situation, so you don’t have to spend the money in your account). If kids are at least 5 years out on your time horizon, you can also invest the money in your HSA to help it grow even more.
Keep Costs in Check
Yes, your new baby will need baby diapers, wipes, bottles, and countless other items. But they don’t need a full inventory of what department stores sell for infants and children — and they certainly don’t need a luxury version that costs the most.
If you want to start a family, consider making a list of necessary, needed items now. Before a baby is on the way, you’re likely to be a little less emotional and more objective about what’s a need versus a want.
And because babies grow so quickly, remember that the items you want to buy may not be useful for very long — and that other families likely have the items you need if they’ve already had children.
Your friends, family, and coworkers will probably be happy to shower you with baby clothes, diaper bag supplies, and more, too. Most of the time, parents have plenty of onesies, spit-up cloths, shoes, and clothes they can give you as hand-me-downs, which can save you hundreds of dollars.
There’s absolutely nothing wrong with accepting secondhand items or buying used furniture and other supplies. Plus, you can do your part by paying it forward and handing these items to another new parent when the time comes.
Consider the Long-Term
Having a child requires some long-term planning because there are likely going to be some big costs in your future. Given the rising tuition both in-state and out-of-state, it’s important to start saving for college as soon as possible (which, in the case of accounts like 529 plans, may mean after the baby is born). Take advantage of tax-advantaged savings vehicles you can start contributing to right away. Once you start your family and have dependents, you’ll want to ensure they’re covered. You’ll need a life insurance policy that’s right for you and your situation.
You’ll also want to start planning your estate and adjusting your will. This plan includes designating where your assets go, guardianship of your children, and creating a trust. No, this isn’t just “for rich people.” Everyone needs an estate plan! The last thing you want is a court making these decisions on your behalf.
Use Your Network When You Can
Don’t be afraid to ask other parents questions related to unexpected costs and what to expect when you’re expecting. These people have been through it before and can offer some great ideas and solutions.
Also, use your network for referrals for quality, cost effective childcare, and baby products. You get a very real look at how a babysitter or nanny may fit your family situation based on how they worked out for another family. Plus, a referral from someone you know and trust goes a long way. Ask around to see where other moms got, for example, cribs or strollers. You may end up finding some great deals at an online store or a warehouse club deal you didn’t know about.
Finally, don’t lose sight of your personal financial goals. You still need to take care of you and your long-term needs — so make sure you’re still paying yourself first and contributing to your retirement and savings accounts.
If you start to feel overwhelmed by the long to-do list that comes along with planning for this child, it helps tremendously to have a financial plan in place. This can help you see the big picture and understand how to allocate your money in a way that covers all your goals and needs.
To learn more more about this topic and about how FamilyVest can help you with your financial goals, schedule a call with us on with the link below!