Becoming a parent is a life-changing experience filled with new perspectives and priorities. It’s also a season of tremendous personal growth and transformation. You quickly realize that your life will no longer be the same… in the best possible way.
A new baby impacts your life in many different ways… you experience more love, snuggles, and joy while simultaneously getting less sleep and free time. And perhaps one of the biggest ways your new bundle of joy transforms your life is through your finances.
The Bookings Institution recently reported that it costs approximately $310,000 to raise a child to the age of 17, and unfortunately, this amount does not include college tuition. That’s a LOT of money!
While I hope this figure doesn’t discourage you from becoming a parent (it truly is amazing!), I do hope that it encourages you to financially prepare. Using this financial checklist for new parents can help you holistically prepare for the impact a child has on your life (and budget).
Check these items off your list today to put yourself in a strong financial position:
Build an emergency fund
Budget for baby
Plan for childcare costs
Review your healthcare coverage
Prepare for the worst
Save for college
1. Build an emergency fund
An emergency fund is recommended for everyone, parent or not, because you never know when a financial crisis could strike. Healthy savings can help mitigate the burden of an unexpected illness, layoff, or home repair.
It’s especially important to have an emergency fund when you have a child because you’re responsible for not just yourself and your partner, but a whole new life. Having three to six months’ worth of expenses can help you navigate a financial downturn while still being able to provide food, shelter, and other necessities for your little one.
2. Budget for baby
As mentioned above, raising a child is expensive, and the costs don’t just start when the baby is born. Prenatal care and delivery are often covered expenses by insurance, but most women still end up paying a large chunk of money (approximately $2,800) out-of-pocket.
A baby’s first year continues to be quite costly because of the various furniture and gear a baby requires. It’s wise to save up for these costs ahead of time, buy secondhand, and ask for specific items if friends or family want to contribute. Some expenses to keep in mind for the baby’s first year include:
Nursery: Crib, bedding, dresser, change table, baby monitor, rocking chair, etc. This can cost anywhere from a couple of hundred dollars to a couple of thousand dollars depending on the brands.
Diapers and wipes: This can cost approximately $120/month
Formula: This can cost a couple of hundred dollars per month and if you choose to breastfeed, you’ll need to consider the cost of lactation consultant support, storage bags, nursing bras, etc.
Baby gear: Gear such as a car seat, stroller, baby-proofing items, baby carrier, and diaper bag can all add up as well.
Inventory what you have for baby and slowly build the rest into your budget. Be sure to account for the consumable items that will need to have a permanent place in your new budget.
Consider other possible costs too, like housing and transportation. You might find that a studio apartment and a sedan don’t fit your new parent lifestyle for long.
3. Plan for childcare costs
Childcare will most likely be one of your biggest expenses when it comes to raising your child, and if a parent decides to stay home to care for the child, you’ll need to consider the loss of income and potential employment benefits. As well as the effect an employment interruption has on retirement contributions and resumes.
Families report that they spend 10-20% of their household income on childcare, which has considerably increased in the past year due to inflation. Research your options and see which childcare option makes the most sense for you and your family.
A lot of parents are choosing unique work-life integration options such as utilizing family for childcare support, nanny shares, and part-time work-from-home options.
This is a highly personal choice with no one right answer. It’s important to think about your hopes and dreams for your family, too. The choice you go with may not be the most lucrative option, but if your budget can support it and it’s best for your family, then go forward with confidence!
4. Review your healthcare coverage
Births and adoptions are considered “qualifying events” which means you typically have 60 days to apply for or change your health insurance plan, something you can typically only do during open enrollment.
Review the healthcare options available to you and comb through the summary of benefits so you know exactly what the plan does and does not cover. Children require well checks, vaccinations, sick visits, and more. It’s important to make sure you have the right type and amount of insurance to protect your family’s health and finances.
5. Prepare for the worst
No one wants to think about the possibility of passing, leaving your new baby all alone. But unfortunately, we can’t predict what happens in life. In the very unfortunate case that you or your spouse die unexpectedly, you’ll want your child (or children) to be covered financially.
A life insurance calculator can help you estimate which plan is best for you and your family. Life insurance should also be considered for a parent who stays home to care for the children and home. Consider how much it would cost to replace the stay-at-home parent… the price of a housekeeper, childcare provider, meal delivery service, etc. would all add up.
In addition to life insurance, you’ll want to make sure you draw up a living will so your wishes are carried out exactly how you want, should something happen to you and your spouse. A living will includes guardianship documents where you state who you want to care for your children, healthcare proxies that determine who can make medical decisions on your behalf, and a power of attorney, which states who can legally act on your behalf.
These tasks are certainly not the most fun way to prepare for a new baby, but they are extremely important to check off so your family is taken care of should the worst happen.
6. Save for college
It’s tough to think about diapers, formula, childcare, and the cost of college at the same time. However, if you start saving for your child’s college education when he or she is born, you’ll be able to save a lesser amount of money each month.
A 529 plan is an excellent vehicle for saving money. Contributions are typically not subject to taxes and if used for qualifying education expenses, the withdrawals are also not subjected to taxes.
Conquer Financial Planning for New Parents with Wealthly
As a mom myself, I love helping parents-to-be figure out how to integrate their new bundle of joy into their finances. I understand the balance of family, career life and enjoy sharing my experiences and knowledge with others.
To see how we can help you prepare your budget for a new baby and other exciting life events, email me at latoya@wealthlyliving.com or click here to fill out a contact form today. We’ll be in touch soon!
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.