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How to Financially Prepare for Having a Baby

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Some may say that there is no way to completely prepare for having a baby, but there is plenty you can do to make the path as smooth as possible financially for baby’s arrival. (I can’t help you with the sleepless nights except to tell you that eventually, though not as soon as you would like, you will be able to sleep through the night again!)

According to the USDA, a child born in 2010 will cost $226,920 to raise to the age of 17. That number doesn’t even include college expenses! Even if you take measures to cut costs, raising a child is still an expensive proposition. Ideally, your preparation should begin before baby is even conceived.

Pre-Conception Preparation

Get on a written budget. If you aren’t already doing this, start immediately; choose the budgeting method that works best for you and your partner. Expect to take about 3 months to feel comfortable with the budget and also expect some failures along the way. However, once you are used to a budget, it will become routine, and you will be in charge of your money.

Start an emergency fund or bulk it up. The days of being carefree end once you are responsible for another human being. Experts generally recommend a six month emergency fund, with a one year emergency fund being optimal. Get in the habit of putting aside some money every paycheck for emergencies. After the baby is born, you’ll be glad the cushion is there.

Planning for Baby’s Care

Will one of the parents care for the baby? The first thing you will need to determine is if one parent will stay home to care for baby or if both parents will work. Honestly, though, this decision is hard to make until baby gets here. Some parents are sure they will go back to work, but then after the baby is born realize they don’t want someone else to care for their baby for 8 to 10 hours a day. Other parents stay home for maternity or paternity leave and can’t wait to get back. The best bet is to treat your pre-baby finances as if someone will be staying home. Then, if it isn’t the case, you have extra money set aside; if it is the case, you are financially prepared.

Get on a daycare waitlist early! In many areas of the country, quality daycare can be tough to find. I put my daughter on a waitlist when she was a newborn. Even though I had a generous 9 month leave of absence, my daughter still didn’t get into the daycare by the time I had to go back! I later heard that the parents who got their children into the daycare registered for the waitlist as soon as they found out they were pregnant. In this case, register even if you think you will stay home; you can always cancel your reservation when you know for sure.

Increase your flexible spending (FSA) dollars. Many employers will allow you up to $5,000 in FSA dollars to pay for your childcare. Unfortunately, this amount will be gone quickly, but it does save you some money because that money comes from pre-tax dollars. While you are at it, you may want to increase your medical FSA because baby’s go to the doctor, a lot!

Preparing for the Future

Open a college savings account. Ideally, you should open a college savings account when your child is an infant to take advantage of the power of compounding interest. However, remember to take care of yourself financially first. Do you have an emergency fund? Is all of your debt paid off except the mortgage? Are you saving for your retirement? If you answered yes to all of those questions, then start the college fund. Even if you deposit as little as $25 a month, you will benefit from compounding interest, and you can add more when your finances improve.

What other steps do you recommend soon-to-be or new parents take to secure their finances?

{ 4 comments, please add your thoughts now! }

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4 Responses to “How to Financially Prepare for Having a Baby”

  1. JP Adams says:

    Thanks Melissa for the interesting post. Do you have any thoughts on what some of the unexpected costs are? What should new parents look out for?

    – shots and health costs
    – babysitters during date night
    – additional funds to purchase a better car


  2. Melissa says:

    JP–I agree with all of the ones that you mentioned.

    Other expenses that we didn’t plan on were

    – my son’s physical therapy,
    – the fact that two of our kids developed intolerances to soy and dairy, so we had to change our diet and grocery shopping
    – buying additional car seats when we had two kids 18 months apart instead of just handing them down as we were able to do with the first two

    It is different for each family, but there are always those unplanned for expenses.

  3. Seth says:

    As an additional idea for the “Get on a written budget” suggestion, I would say to go ahead and allocate a certain amount of money for baby expenses. There are lots of little things that will add up in costs (diapers, clothes, toys, treats, maybe even formula). Setting aside money for those types of baby expenses will certainly help.

  4. Some additional financial considerations, life insurance should something happen to you and your spouse. Along with that a written will that designates a guardian. The reason these pop into my head is because I am a hypocrite and have delayed doing these things so far and my oldest is 6!

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