Few things in life are as rewarding…and expensive as having a child is. In fact, according to the 2015 Expenditures on Children by Families report, the average cost of raising a child through age 17 is $233,610.[1] With inflation, that’s over $250,000 now. Nevertheless, the costs of raising a child can potentially be lessened with proper planning. Whether having a child is simply a dream or you’re currently expecting, it’s important to consider the things you can be doing to better financially prepare for that next step. As future grandparents you can help focus the parents to be as well.

Check your Employer’s Maternity/Paternity Leave

       You and your partner should review your respective employer’s maternity and paternity leave policies. While some states require paid maternity leave, federal law only requires 12 weeks of unpaid leave for employers with 50 or more employees. If you work for a smaller company or one whose policies you’re unaware of, sit down with your Human Resources representative to discuss how much time you will have both paid and unpaid. 

Evaluate your budget

     If you don’t already have a budget made for your current lifestyle, it’s important to make one. That way, you can evaluate your current savings after your monthly expenses and track where you may be overspending. From there, you’ll want to begin estimating the costs associated with having a baby. There are calculators online that can help you in this step but important items are clothes, food, diapers, child care, medicine, toiletries and savings. If one parent will have a reduction in income to stay home with the baby, you’ll want to factor that in as well.

Build an Emergency Fund

and Pay Down Debt

       If you’re currently expecting, here’s where evaluating your current budget helps. If you can afford to cut costs in certain areas to help build your emergency fund or pay down debts. We recommend having three months of expenses saved as an emergency fund but if you have 9 months or less to save up, it may be more difficult. Either way, prioritize that emergency fund first and foremost. If you haven’t conceived yet or already have an emergency fund, you can focus your goal on paying down debt. Higher interest credit cards will be one of the last things on your mind when you have a newborn to raise, so the sooner you can pay these debts down, the better.

Plan for Delivery Costs

       Delivering a baby is expensive without complications and more if you do. You can estimate the costs you will pay out of pocket here. Luckily, payment plans are available so you don’t necessarily have to pay upfront in full.  

Find Child Care

       One of the largest expenses of your child’s early life will be childcare and education. For parents who will be utilizing a day care or other form of child care, it’s important to begin your search soon so that it can be properly budgeted for and your name added to a waitlist if there is one. Some employers may offer childcare or Flexible Savings Plans which can be used to cover the cost of childcare so be sure to ask your employer what benefits they provide.

Estate and Insurance Planning

       Welcoming a new baby also means welcoming a new concern for their well-being. Part of their well-being involves ensuring they are properly cared for in the event anything happens to your or your spouse. You should be taking the time to sit down and review your life and disability insurance needs with your financial advisor. Similarly, your estate plan should account for your family’s new addition. Think about who you would like to appoint as a guardian, how you would like to set up your beneficiaries and what you want to provide to your child if you were to pass. A Financial Planner and Estate Attorney can help put together a plan specific to your needs.  

Before Your Baby Arrives

       In addition to the above preparations, you will also want to prepare by getting all of the necessary items for your child. This may include a bassinet, crib, diapers, clothes, blankets, formula, bottles, toys, books, etc. You may even need to consider a bigger vehicle, depending on what you currently drive.  Additionally, baby proofing your home is also important not only for your child’s safety but to prevent any potential damage to your home.

Once Your Baby Arrives

       After your baby arrives, you have 30 days to enroll them on your health insurance plan. Your child will be visiting their pediatrician frequently the first year so get the paperwork beforehand to expedite the process. Now may also be a great time to open up a savings or 529 account for your child to start saving for one of the costliest times of their lives. Time and compounding are especially on your side while your baby is young, so take advantage of these tax advantaged accounts early. 

       The 9 months prior to the birth of your child will present new challenges and financial decisions you’ve likely never considered before. What is often the most joyous time for parents may also be a stressful one without proper planning and preparation. Reach out to your financial advisor to help guide you in these decisions. After all, you have at least 18 more years of them coming.

Written By: Peter Gutekunst, Financial Planner

[1] https://fns-prod.azureedge.net/sites/default/files/crc2015_March2017_0.pdf

Opinions expressed in this blog post are those of the author and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Diversification and asset allocation do not ensure a profit to protect against a loss. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.