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Preparing Financially for a Baby

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Cute BabyThis is a guest post by Phil of Prime Time Money.

We’re expecting our first child in a couple of months. It’s an exciting time, filled with lots of uncertainty. Thankfully, because of a bit of preparation, we don’t have that much to be worried about financially.

Prior to deciding to have kids, every time I thought about the issue of children, the lyrics to the Harvey Danger song would repeat in my head: “been around the world and found that only stupid people are breeding…” I’m not sure if the song lyric was a slap at unprepared parents or if they were referring to the fact that anyone who decides to have a kid has got to be stupid. Either way, I’ve always felt strongly that I wanted to be *ready* before I brought a kid into this world.

Jim’s mentioned to me that he had no clue when it came to starting a family, so I thought I’d offer up a few thoughts on the subject of planning financially for your first child.

So what does it mean to be *ready* financially for a child? Here are a few steps I’ve thrown together to help you think it through:

Get an Idea of What it Costs to Have a Baby

I think most of us are pretty clueless when it comes to how a baby will affect our finances. The numbers are pretty daunting when you first see them:

“Childbirth and prenatal health care cost averaged $7,090 for normal delivery in the US… [The] US Department of Agriculture estimates that a US family will spend an average of $11,000 to $23,000 per year for the first 17 years of child’s life on a child born in 2007.” – Wikipedia

I feel like those numbers are a bit high. Still, you’ve got to put some stock in them and realize that it’s worth your time to think about how much having a baby will cost you. Want a blow by blow account of how much a bay can cost, check out this total cost of having a baby post from last year.

Pre-Labor and Delivery

Let’s look at some ways to get a good understanding of what it might actually cost you to go to all those doctor visits and to deliver your baby in a hospital:

Ask Your Friends, Co-workers, and Family – I’d start by asking a co-worker who recently had a baby. They’re more likely to have used your work’s health care plan and your local hospital. They can give you a good idea of what they had to pay out of pocket for the delivery.

Examine Your Health Care Coverage – Take an evening to understand exactly what your current health care plan will cover. You might be able to switch to a more beneficial plan, reducing your overall out of pocket expenses for the pregnancy and delivery. We’ve currently moved to our premium plan while we’re expecting and will re-evaluate plans after our child is born.

Call the Doctor’s Office – If you already know what doctor you’ll likely be using for the delivery, place a call to his/her office and ask for a cost estimate for all the pre-labor visits and the actual delivery. They may even be able to give you an estimate based on your current insurance.

The First Year

Next, you should examine what the first year of your baby’s life will cost you. There are a lot of things to consider here. I’m not going to try and list them all, but I will refer you to a handy tool that helped me:

Use the Calculator at Baby Center – The baby cost calculator at BabyCenter.com is an all-encompassing tool for helping you estimate what it might cost you to have a baby and take care of them in the first year. The calculator considers the basic equipment and supplies and even factors in child care and loss of one income.

Take Action to Prepare for a Baby

Now that you’ve got a feel for what it costs to deliver and raise a kid for the first year, you need to take steps to prepare your finances. Here are some ideas:

Start Saving Up – A good place to start is to make sure you have enough money saved up so that you don’t have to go into debt as a result of delivery and first year costs. Make it your goal to save up your total estimated amount by the time your baby is born. If that’s too aggressive for you then shoot for the delivery costs and half of your first year expenses.

If you’re about to start trying to get pregnant, simply divide your total estimate by 10 months, and begin setting that much aside in a savings account every month. If you’re already expecting, just use the number of months you have left. Lastly, you need a place to put your savings. Jim’s got some excellent recommendations (link to your savings account page here).

Get Rid of the Excess Debts – Bringing a child into this world gives you the opportunity to press the reset button on your life somewhat. Take advantage of this change and plan to get rid of that nagging credit card debt or student loan payment. Use this nine months to knock it out and be ready to start a debt-free life with your new baby. This make you feel better and it will free up room in your budget for these extra expenses.

Final Thoughts on Babies and Finances

The wonderful thing about preparing for a baby is that we have nine months to do it. So, even if your child wasn’t planned out perfectly on the calendar, there’s still time to get your financial act together. Take time to understand what your financial needs will be and then take action to prepare yourself. If you’d like to follow our baby story a little closer, visit my blog at FNBO Direct’s “Pay Yourself First” Challenge website. While you’re there, I’d appreciate a vote to help advance me in the contest.

(Photo: 44444)

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14 Responses to “Preparing Financially for a Baby”

  1. Studenomist says:

    Great post Phil! I am no where near to having kids, well unless something unexpected happens. My comment may seem silly but what about the idea of preparing for your childs education before they are even born? Setting up some sort of a registered education savings plan just to have a head start. It will allow the parents so slowly save for the childs post secondary education and it will allow the child to be able to attain a quality education without having to stress about loans.

  2. Audra says:

    Congrats on the soon to be new addition- I think your post is right on as the need to prepare financially- like you I think the projected costs are a little high. My son is almost 18 months old- has health insurance, and all the needed ‘baby’ items (As well as many not so needed ones) and including the delivery we spent far less than 11K on him his first year…

  3. tom says:

    I think having a baby is a big financial decision that should be planned out in detail ahead of time.

  4. PT Money says:

    @Studenomics – Thanks for commenting. I think it’s a great idea if you’ve got yourself taken care of first.

    We’re still deciding as to what we want to do with education savings. Obviously there are big advantages. But we have some other personal milestones to achieve before hand.

    At the end of the day, I don’t think post-secondary edu is a requirement for any parent to take on. Retirement savings first, then maybe help the kids. Just my opinion.

    @Audra – Thanks for the kind comments and the assurance that it won’t be “that” expensive.

  5. FFB says:

    If you and your spouse have medical coverage make sure the hospital, your doctor, and your coverages know which insurance will cover the baby! We had some confusion with carriers when our son was born and it ended up we couldn’t get a visit covered and had to pay out of pocket shortly after he was born.

    And, maybe you’re humble people who don’t want anyone to spend one you. That’s great and admirable, but register for baby items anyway! You never know when friends or co-workers will surprise you with a shower. And friends are very happy to chip in for a baby. Give them an opportunity to help you out by having a registry available. This also saves you money since you may not have to buy as many items or you can at least get credit should you have to return anything.

    • PT Money says:

      @FFB – We’ve been truly humbled by the out pouring of gifts and hand-me-downs our friends and family have given us. There were three showers thrown for us. We racked up. We feel super blessed.

  6. Dedicated says:

    The song to me is just a confirmation of the thought – “I didn’t know how stupid I was until my teenager told me.”

    As far as the cost goes, if you just have one, I would say the governments assessment is accurate. With each additional child the cost declines as it spreads over numerous kids, but don’t mistake that for cheaper – your still paying for 2.

    As far as the medical costs go, that number is based on what medical insurance pays. I had all my children at hospitals, with normal deliveries. I paid cash for all of them. The most I paid was $1500 – that original bill was over $3k. So check your hospital bill. When you go in to deliver a baby they automatically add charges to your bill that they call standard, even if you don’t use them. For example – Tylenol I was charged $7 back then for 1 pill, because I had a midwife I knew to bring my own and saved that money by calling them out on it when the bill arrived.

    Interestingly enough, they did not question the items I told them to remove that I didn’t use. Goes to show how much we are ripped off if we aren’t paying attention.

    • PT Money says:

      Thanks for the tips, Dedicated. I’ll do my best to be diligent towards the final bill. I agree that you shouldn’t just leave it up to others…investigate for yourself.

  7. Dave says:

    I definately agree that you need to have your finances in order to have a baby. I don’t know if my wife and I are very lucky (besides the fact that we have an adorable 6 day old) but we’ve spent almost nothing out of pocket – around $400 – and most of that was frivolous (Did I really need a $200 car seat? Safety first – Yes). We’ve gotten a ton of gifts from our friends and family and we are also getting a ton of hand me down clothes from at least three people with little girls who are more than happy to clean out their attic.

    I think that if you are frugal and are willing to accept that you can’t buy everything that Baby’s R Us sells and are humble enough to take other people’s unused baby stuff, then having a baby is way cheaper than the numbers listed above.

  8. urbantux says:

    I have recently found out I will be expecting my second, I don’t know that you can truly ever say you are “ready” but I will say my son was one of the greatest things I have accomplished and I am sure that my second will be just as big of a blessing to me and my family.

  9. saladdin says:

    The very first question should be “Do I want a kid?” Just because you can afford one doesn’t require you to have one. Nothing wrong with not having a kid. Doesn’t make you less a person or your life “incomplete.”

    saladdin

    • Jim says:

      Very true, I think it’s very much like anything else – you have to do what makes you happy, not what society has decided.

  10. There are costs even before the baby is due, pre-natal care, all the co-pays for doctor’s visits and maternity wear! Often you need a new wardrobe to fit your post baby body as well, guys don’t always think of these things. The biggest fear for me is daycare, I make too much to be the one to stay home and my other half isn’t keen on being a stay at home dad. I’m trying to save up before babies come along, knowing that it will be more difficult later.

  11. Diego Petham says:

    Thanks for the great information! We are considering having a baby in the next year or two, but are totally unprepared for daycare costs! I get a federal discount, and even with that, costs would run around $511 bi-monthly! That’s like taking on another mortgage!


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