Deciding to have children can be one of the most exciting and important decisions in a person's life. Financial planning for having a baby is an absolute must in today's economy, and there are many factors to consider. In the area I work, I see too many parents without the means to provide for their newborn. Not only that, they have not given a thought as to how they will go about daily life when the baby is brought home, and how it will affect every aspect of their lives. Now, more than ever, parents need to start planning how they will manage their finances when the baby arrives.
Breakdown of Time
There are two factors to be considered when making financial plans for an upcoming baby, time and money. Time is something I feel people often forget in regards to having the means to raise an infant. A baby needs consistent 24-hour care, and will need this supervision for the next three or four years. Someone will always need to be with the child. The decision parents have to make is whether or not one of them will stay home with the baby, or what type of childcare they will send their little one to once mom is off maternity leave.
Deciding what to do in regards to childcare is easier said than done. Daycare services and in-home childcare providers are getting more expensive each year. An estimate from my own searching when we were preparing for our baby girl led me to find that the average weekly daycare cost was around $130. That amounts to about $520 a month. With the cost of living increasing for families every year, we can only expect that amount to increase in the years to come.
In our particular situation, I was on the verge of searching for a new job that would pay a little more to help with the recent purchase of a house. But when we found out we were pregnant, my wife and I realized that the cost of childcare would take too large a chunk out of our take home income. We had to find an alternative solution. My job was flexible in regards to scheduling, while hers was not. My wife also wanted to go back to work, and didn't have the complete desire to be a full-time stay at home mom. She thought about it, but she really enjoys what she does for a living. My wife is a caring, loving mother, who completely enjoys spending time with myself and the baby, but she gets fulfillment from being in a productive job she loves.
So, that left me to be the one to stay at home with the baby. My work schedule was rearranged so that I could be at home when my wife worked, and I started to enjoy being a stay at home dad. I know that is slightly contradictory, but because I am home taking care of the baby, I believe I fall into both the stay at home parent and full-time working parent categories (yes, I still work full-time). My wife has now become the primary flow of income in our family. It's a role reversal I had to get used to, as our society today still mainly views the man of the household as the primary breadwinner. However, we are slowly seeing an increase in the number of women becoming the main money makers of their families, and I think our society is the better for it.
Another option to consider is to have a relative or close friend take care of the baby while you are at work. Often, they may let you pay them less than normal daycare would, or in some cases, pay nothing at all. If you have this option, consider yourself very lucky. I am fortunate to have my parents and my wife's parents very close by if we need someone to watch the baby. We are ever grateful for their love and care of our little girl when they watch her. If you are afforded the same luxury, thank the people in your life that provide this invaluable service.
Now, not all families will be able to do what my wife and I have done, as some schedules simply are not flexible. So, many moms and dads will be forced to make the decision on whether or not one of them will leave their job and stay home full-time with the new baby. For this decision, their are so many additional factors that it is hard to focus on this one aspect. Many parents feel very strongly about caring for their child and doing whatever it takes to ensure that happens. But you cannot discount the financial aspect of raising a baby. It always will be a factor, so make sure the time you are given is used in the manner that best suits your baby's needs.
Breakdown of money
After figuring out how to manage your time concerning childcare, the next step is to evaluate what additional expenses having a new baby will bring. Babies are not cheap, plain and simple. You will incur extra costs on a monthly and weekly, if not daily basis. I intend to go over the basics, but there are so many additional costs that discussing them all here would be next to impossible. Here is a list of items to think about when planning your finances for the new baby:
- Hospital expenses
- Insurance - Adding the baby to your insurance
- Breast Milk vs. formula
- Nursery items/decor
- Baby accessories
- Childcare (if using)
The first extra expenditure to consider is what you will be charged during your hospital stay, assuming your birth takes place in one. Call your insurance company and find out how much of the bill you will be responsible for. Most insurance companies will have a standard rate for the birth of a baby. If I remember correctly, our insurance company had a standard $250 responsibility for our part. Not bad when the average charges accrued for a birth in a hospital can be upwards of $5,000. We even filled out our paperwork ahead of time, and made the payment prior to the actual birth.
If you do not have insurance, then get apply for Medicaid as soon as possible. Having that information on hand and presented to the hospital before the birth of your baby can make the process much smoother on you.
Regardless of what and how you pay, consider the hospital expenses first. The earlier you know what it will cost you, the more time it gives you to put money aside.
If you have health insurance, it is important to be aware of what it will cost to add the baby onto your policy. This will likely increase the amount taken out of your paycheck. Insurance (or Medicaid) is an absolute must for your child, as it will cover most if not all medically related charges. This includes pediatrician visits and any further hospital visits. The least you will have to pay is a co-pay at the doctor's office.
By spending the money on insurance, you actually be saving money. If I had to pay for all the pediatrician charges in full for my baby up to this point, I'd be broke! So always factor in what the additional cost will be by adding your baby to your health insurance policy.
Breast Milk vs. Formula
This is a heated topic no matter where you are. There are so many advocates for both sides of this debate that it is a moot point to argue this way or that. Having said that, both my wife and I are strong advocates of breastfeeding. Nothing to date can duplicate the nutritional value of breast milk, or the antibodies it provides, which helps build and strengthen a baby's immune system. Hence, this is the path we took.
This topic, however, is important, and can potentially impact your financial planning the most. Formula can be extremely expensive. Breastfeeding can save you hundreds, and even thousands of dollars in formula. I asked a friend of mine what she spent on formula for her baby, and she said around $125 a month, for 14 months. A little math shows us that formula over a year can easily exceed a thousand dollars.
Breastfeeding can be difficult to continue the older your baby gets, so keep in mind that it is not always the easiest of tasks. Be sure when weighing the decision on breastfeeding or formula feeding, to take into account the extra expenditure choosing formula brings.
Diapers are the titans of baby products in my opinion. You have to have diapers, period. Diapers are a huge factor to consider for financial planning, because of the quantity used and how much they cost. From my own personal experience, I can use anywhere from seven to ten diapers a day. That means I can use anywhere from 200 to 300 diapers a month, costing me around $60 to $75. That extra expense is just one more on top of many, and definitely needs to be budgeted out when thinking about what it will cost when your baby arrives.
Nursery Items & Baby Accessories
I am lumping these two together because many parents get these items before their baby is actually born. This includes items like a crib, bassinet, changing table, stroller, car seat, toys, sheets, baby carriers, bottles, pacifiers, and so many other items. Make a list of what you need, and approximate what it will cost you. Maybe budget the list out by buying little portions at a time up until mom's due date.
A little tip I would like to share, that many parents already know, is to check second hand baby/child stores, and craigslist. Craigslist.com is a very popular online free classifieds website searchable by major city areas across the United States. My wife and I have found several pieces of furniture there, and a couple of our nursery items. Second hand stores will sell baby accessories for much cheaper than if they were new. Plus, you would be surprised at the good condition most of the items are in. I urge you to at least check out these options, as they can end up saving quite a bit of money.
Clothes are important to consider in your financial planning because babies go through them so quickly! My baby was only in her newborn clothes for a month and a half. They quickly grow, and you will find yourself needing to buy more clothes the older they get. You can't really expect to set aside an exact amount for clothes, because you will not know what you need and how much you will need until actually at that point. Nevertheless, it is a cost to keep in mind, and one that will continue throughout childhood.
As mentioned above under Breakdown of Time, childcare will probably be the largest expense for your baby, if that is what you must do. You can use a safe estimate of around $500 a month for a full five days a week. The unfortunate aspect of this is that childcare is slowly continuing to climb in price, so make sure this is taken into consideration.
Every little bit of expenditures adds up. On a monthly basis, it is easy to spend hundreds of dollars that you never had to consider before. That means you may need to give up certain luxuries you enjoyed before the baby. It is a process almost all parents have to do. For my wife and I, it meant eating out less, buying less clothes, and spending less on groceries.
I find myself at home most of the time, in an effort to conserve money. By staying at home, I realized I would be giving up the ability to leave whenever I needed to. It really isn't that bad. I usually am so focused on caring for my daughter, that I barely realize I have been home all day. In doing this, I have not only saved money on gas, but saved due to the fact that I'm not running as many errands or going to as many stores. Overall, it's been great for our budget.
Plan ahead of time
If you have the means, start setting a little bit of money aside each month for when the baby arrives. Some couples will save for years before they start trying to have a baby, and have a nice head start. Whichever you do, it will be a nice little security blanket when you are adapting to life at home with a newborn. Mom will be off work, and dad might take a week off as well, so having some backup funds will make this new adaptation less stressful.
Finding out you are going to have a baby is a wonderfully exciting time, and nothing can quite ever duplicate those emotions. Once everything has settled down though, start planning early for how you are going to manage your money once the baby arrives. Financial planning is more crucial now than ever, so take the time to make a plan for your wonderful, new bundle of joy!