Many people dream about growing up and having a family, but very few people are practical enough to calculate how much it will really cost. The truth is that your dream come true can become your worst nightmare if you donít plan ahead financially. Your new bundle of joy can end up costing a bundle unless you are organized and prepared to pinch every penny until it screams.
In this guide, we will be discussing how to budget for your first baby, and practical action steps you need to take in order to secure your and their financial future. Letís start with a look at the actual projected costs of raising a child.
1. The Average Cost of Bringing Up a Child
The most recent estimate for the average cost of bringing up a child comes from CNN Money. As of January 9, 2017, they estimated that it cost $233,610 in 2015 to raise a child from infancy to age 17. College years will obviously cost extra. The annual total parents can expect to spend is estimated at between $12,350 and $14,000 each year. http://money.cnn.com/2017/01/09/pf/cost-of-raising-a-child-2015/index.html
The child is expensive in infancy because you need so many new things. However, there are ways of getting the essentials cheaply if you know what to expect.
The cost of housing also makes up about one-third of the cost of raising a child, as people get a larger apartment or even buy a home and take on a mortgage in order to have room for their growing family.
Diapers do cost, and so does the amazing amount of laundry one tiny person can create. Food is another top expense, and will increase as the child gets older, peaking in the teen years. If a woman breast feeds, she can save on formula. A breast pump and bottles can take the burden off the mother and enable others to help with the feeding.
The lost wages a woman will encounter due to maternity leave can be considerable, and incalculable. Those with poor maternity leave provision will not have money coming in, and lots of expenses going out. In addition, the gap in work of at least three to six months can cost in terms of career as well, with the woman being seen as less promotable because she has been away.
Even if she wants to rush back to work, many daycare centers will not accept a child under six months. This means staying home, getting help from a family member, or hiring someone. Some workplaces offer Flexible Spending Accounts (FSA) for dependent care. Youíre allowed to save up to $5,000 per year from pre-tax dollars, but you must be married and file a joint tax return. Otherwise, the limit is $2,500.
There are also FSA accounts for healthcare spending. The limit is now $2,600 annually. This can help offset the costs of doctorís visits, prescription medications, and even many over-the-counter items if you have a prescription for them from your doctor.
Childcare expenses can total around $37,000 per child, with most of this spent during their pre-school years. Transportation, food, healthcare and clothing costs will all increase as the child gets older.
Dealing with the Unexpected
The dream of having a family can turn into a nightmare due to the unexpected. Women who have trouble conceiving will have greater healthcare costs, particularly if they opt for fertility treatments and/or IVF.
Some women have problematic pregnancies, such as being in danger of having a miscarriage, in which case they wonít be able to work right up until the time the baby is born. Others might develop high blood pressure or gestational diabetes and also have increased healthcare costs.
We all dream of a perfect baby. However, this is not always the case. Some babies are born prematurely and need round-the-clock care. Others have certain health issues that need to be treated in the hospital, like jaundice. Still other might be born with birth defects or other health issues, such as Downís syndrome.
The only way to prepare for the unexpected is to make the most of whatever money you do have coming in, with a workable budget that will cover all the essentials, and a focus on saving rather than spending.
It should also mean planned parenthood, that is, having a baby with a schedule in mind rather than by accident. Nature will of course have a role to play, but modern couples have many birth control options and women as well as men are tending to favor having a family later in life, when they are more established in terms of their career and finances.
But of course, a baby on the way means rolling up your sleeves and getting ready. Letís look next at financial preparedness once you are expecting your first child.
2. Financial Preparedness for Your First Child
As soon as you know you are expecting, or your partner or spouse is, itís time to get to work. Take a 360-degree look at all of your income, expenses, and insurance. Begin a budget that will account for not just your present expenses, but also things you will need to buy for baby and future necessities.
Start Using Financial Software
It can help you track your expense and manage your budget.
Try to institute a spending freeze and savings surge by looking at your budget and trimming the fat. You need to make the most of your income and save as much of it as you can in order to cover lost wages in relation to the pregnancy and maternity leave.
Make a list of how much each of you brings home each month. If one of you has an unpredictable income, such as through running your own business, working on commission, or working in a service job that relies on getting tips, estimate by taking an average of your best month and your worst month.
Centralize all the paperwork and bill paying. The last thing you want is to pay late fees. If you have credit card debt, assess how much you owe and try to pay down part of it. This will increase your credit score in a number of ways, including what is termed your credit-to-debt ratio. Basically, this means you want to owe less than 40% of what you earn in a year. The lower the ratio, the better.
Next, write down all your essential monthly expense, such as rent, mortgage, utilities, car costs and/or transportation costs to and from work, and so on. Anything other than these essentials and some food will be a luxury.
Opt for In-Network Doctors
Be sure you gynecologist/obstetrician is in your network. Choose a pediatrician who is as well. Babies will have to go to the doctor regularly, so this is one of the best ways to keep your costs low.
Determining Your Maternity Benefits and Health Care Coverage
Be sure you are clear about what you are entitled to. Check co-pays, deductibles and so on to determine how much you can expect to pay for your ob/gyn services. Also determine costs between natural birth and a Caesarean section, which can often be done on an emergency basis if the labor does not go quickly.
Check all of your insurance statements, co-pays and other paperwork and keep them all in a safe place. In the US, if you spend more than 10% of your salary on medical expenses, you can deduct it from your taxes. This can include treatment, medication, and even transportation back and forth, so keep good records.
Other Forms of Insurance
In some cases, employers offer both short-term and long-term disability. Be sure you understand your entitlements. In terms of long-term disability, it will often pay only around 66% of your regular salary, but in some cases you can buy up on the plan so it will be as close to your regular salary as possible.
Be sure you have life insurance. Hope for the best, prepare for the worst, and no one will ever have an unexpected surprise. You will need the full details of each person you wish to list as a beneficiary.
https://www.term4sale.com/ is a good site for checking out costs and options. Take the time to discover the different types of life insurance. Some can actually be used to invest money for future financial security.
Apply for a Social Security Number as soon as Baby Is Born
Then add their data to your list of beneficiaries for your insurance, if you so choose.
Order Official Copies of Babyís Birth Certificate and Keep Them in a Safe Place
An official birth certificate is an important document that will be needed for various reasons throughout a personís life, including getting a passport.
Order a Passport
Talking of passports, if you have family overseas, or you and your spouse do a lot of travelling, order a passport for your new baby as soon as the doctor says it is safe for baby to travel.
Ask a Family Member to Open a 529 College Savings Account for Baby
A 529 account is like a 401k, but the money will be payable directly to a school or college, or used for books and supplies. It can be used to pay for K-12 and college, and also student loans. Do not open it yourself, however, as any money saved would be taken into account when assessing your childís financial aid package.
Instead, ask a family member living in your state, if possible, to sign up. Give them the social security number. Review the mutual funds prospectuses to choose the best investments for the money.
Ask the account holder to apply for a Upromise credit card that will give cash back on all purchases. Link your loyalty cards for supermarket, gas, and so on to the account, which will also give you automatic savings.
Make a Will
This sounds morbid, but unexpected things happen every day and passing away without a will can lead to all sorts of administrative issues for the family you leave behind.
Consider Getting Life Insurance for the Baby
No one likes to think about anything going wrong, but for a small premium, you can get a policy that would cover end of life and funeral costs in case the worst ever happened.