Having a child is a miraculous, wonderful experience and brings with it a lifetime of joy. And lots of bills.
A middle-income family with a child born in 2010 will spend about $226,920 – $286,860 for food, shelter and other necessities to raise that child over the next 17 years, according to the U.S. Department of Agriculture. That’s up 2 percent from 2009.
“When you have a child, you are not just a caretaker physically and emotionally to them, but also financially,” said Casey Kupper, certified financial planner at Quest Capital Management in Dallas.
“Much like you must baby-proof a home, you are also responsible for baby-proofing your financial life,” Kupper said.
“Fortunately, a lot of the most important steps are relatively easy and inexpensive to put in place and can be done before your little one arrives, while you still have the time and attention to deal with them.”
Dallas resident Darren Allport knows all about this.
Allport and his wife, Jennifer, have three kids – ages 12, 8, and 5 – with one on the way.
“It’s incredibly important that you budget in your kid,” said Allport, who runs a family business that sells oilfield drilling equipment. “We worked to make sure we didn’t go in with a ton of debt. Make sure you can free up the income you’re going to have.”
Here’s what experts say you should do to prepare yourself financially for raising a child:
PILE UP CASH
It’s critical for all families to build up an emergency fund to pay for, well, emergencies.
“We recommend three to six months of living expenses in cash under normal circumstances, but in anticipation of having the child, focus on building up additional reserves,” said Wade Chessman, certified financial planner at Chessman Wealth Strategies in Dallas.
“This is to cover additional medical expenses, additional supplies, possible loss of income (during maternity or paternity leave), and other unexpected expenses.”
ONE INCOME OR TWO?
“Sit down with your spouse and discuss your goals,” Chessman said. “One spouse may really want to stay home and not go back to work. Adjust your expenses and live on one income before you need to so it doesn’t come as a shock.”
Conversely, neither of you may be ready to give up your careers, in which case you’ll need to budget for day care.
The Allports decided that it was important for Jennifer, who was a tennis pro, to be a stay-at-home mom.
“It’s quite important to determine are you going to fund day care or are you going to try and stay home,” Darren Allport said. “We wanted to really be able to have Jennifer home and really spend that time with the kids.”
When it comes to child care, there are many options available to parents.
“Do your research and think carefully about cost-benefit trade-offs of staying home, relying on relatives, hiring professionals or coming up with a combination,” a colleague who’s expecting her second child told me. “Some families share nannies to cut costs and keep a baby in a home environment, and some parents manage to work from home part of the time.”
MAKE A BUDGET
It’s now time to really start tracking how you spend your money.
“If you don’t have a well-thought-out cash flow plan, also known as a budget, then now is the time,” Chessman said.
“Everyone should have one, but especially someone who is about to go through such a major life change,” he said. “Begin to incorporate expected new expenses in the budget and adjust your cash flow in anticipation of those expenses.”
It’s important to have adequate health insurance that can help offset the costs that come with pregnancy and childbirth.
It’s also important that you fully understand what is and isn’t covered during the pregnancy.
“Many companies require pre-approval for certain procedures,” Chessman said. “Many non-group policies do not cover maternity expenses. In those cases, negotiate with your doctor the cost of delivering the baby. Find out the procedure to add the baby to your existing coverage once he or she is born. Don’t wait too long to notify them.”
Similarly, if your health insurance is through a spouse who is going to stay home, plan ahead to determine how you are going to replace that coverage, Chessman said.
“For those who are starting to plan ahead, they should evaluate, should we be changing our medical insurance plan for something with a lower deductible and lower out-of-pocket expenses?” Kupper said.