With Your Baby on the Way, Can You Deliver?
Financial preps are almost as necessary as a newborn child’s crib
Kids are expensive. That’s not a secret, and there’s plenty to do to get ready before having them. They include weighing how expanding a family will affect finances and preparing a new budget.
Andrew Chen, founder of HackYourWealth.com, and Sarah Lai, social media specialist at global information services company Experian, talked about how to financially prepare before having kids.
Future parents can anticipate many expenses. Chen rolled down his list:
- More housing.
- More food — formula, baby food, equipment.
- Baby clothes — lots.
- Gear — tons of it: strollers, crib, feeding supplies, diaper stuff, toys, etc.
- More healthcare and insurance.
He did a podcast on this: “6 budget items that soar when you start a family and how to save on them.”
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“Before your child arrives, do your research and get a sense of the costs you’ll face,” Experian states. “Talk to your health insurance provider to understand how much you’ll be on the hook for with the hospital bill, since labor and delivery can be expensive even with coverage.
“For some of the larger items such as car seats and strollers, consider putting them on a registry so family and friends who want to contribute can,” as Experian explains in its blog post, “Adoption Costs: 5 Things to Know.”
“I have never changed a diaper in my life, but I hear all the stories,” Lai said. “I am not looking forward to the amount of money I’ll have to spend on it.
“I’ve been to a few baby showers,” she said. “There were a few lucky parents I know who didn’t have to buy a thing when their child arrived because of the abundance of gifts.”
Getting on Board with Baby
There are several money moves to make before having a baby.
“Get hand-me-down supplies, gear, even clothes from friends and relatives and Craigslist,” Chen said. “As long as it’s clean, safe and usable, any hand-me-downs directly save you money.”
He did a podcast episode on this: “How to financially prepare for starting a family with Kevin Mahoney.”
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“Research whether it makes sense to change your health insurance, given the addition of a new family member,” Chen said. “You’ll have a qualifying event allowing you to completely change your insurance elections. Take the opportunity to analyze what’s the best bang for the buck.”
DoughRoller also has an article by Miranda Marquit, “Money moves to make for expecting parents.”
There are ways to know when you’re financially ready for kids.
“Here are rules of thumb,” Chen said. “If you’re not saving anything — even without a kid — you’re not ready. If you habitually max out your 401k, you’re probably ready. As for being mentally ready, you never will be. Just bite the bullet and do it.”
A Wise Bread article compiles “7 Signs You’re Financially Ready to Start a Family.”
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“Not being able to find a sitter to go out without kids has been one of the biggest downsides for many parents that I know,” Lai said. “I’m thinking of offering childcare as gifts from now on, instead of buying material things.”
Life Will Be Different
Chen noted other lifestyle changes you might need to account for when having kids:
- Your nice comfy house is no longer yours. It’s for your kids and all their stuff.
- If you were obsessively neat and clean before kids … well, you won’t be anymore after kids.
- If you’re Dad, just know that when kiddo arrives, Mum has already been baby-bonding for nine months. Don’t feel bad if it sometimes — suddenly? — it feels like you’re a second-class citizen in your own house. It’s normal, and it gets better.”
The Balance features “10 Ways Your Budget Changes When You Start a Family.”
“House hack to lower housing costs,” Chen said. “Don’t be shy about accepting hand-me-downs for anything clean, safe and usable. Bulk buy at Costco. Use Amazon subscribe and save. Use couponing apps and cashback cards.”
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Adding to that, The Financial Diet adds “14 Maternity and New Baby Spending Essentials: When To Splurge, Save Or Skip.”
“I aspire to be one of those crazy coupon ladies when I have kids,” Lai said.
“Babies sure grow fast,” she said. “My best friend’s sister received expensive brand-name shoes for her sons. They’re still sitting in the original boxes unused because they haven’t gotten to all the gifts in time before outgrowing them.”
Lai often discovers a bunch of freebies through sites such as Free Stuff Finder and KrazyCouponLady.
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Podcasts for Guidance
Chen offered strategies for protecting a child’s financial future, many tied to his podcast episodes:
- Teach them a strong work ethic, resilience, a save-and-invest mindset, delayed gratification and personal finance, budgeting and tax skills. That will set them up for life. Podcast: “9 Crucial Money Lessons Your Kids Must Learn to Succeed as Adults.”
- Buy life insurance on yourself. Potentially buy whole life insurance on them. Podcast: “How to use whole life insurance to avoid taxes and grow wealth, with Eric Brotman.”
- Open a Roth IRA for them at a young age. Hire them for your business. Then use the compensation you pay them to fund the Roth IRA.
- Consider a 529 college savings plan. Podcast: “529 college savings plans: rules, tax benefits and qualified expenses.”
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Babysitting and childcare head the list of prime expenses.
“Max out your Dependent Care Flexible Spending Account,” Chen said. “Hire an au pair. Double up with a parent or friend and split nanny or childcare costs via a home-based daycare for infants and toddlers only.”
Caring companies also can be sources of financial support.
“Experian offers their employees family care benefits that include in-home or in-center care at subsidized rates — as well as pet care,” Lai said. “I’m so glad to be working for such an awesome company. Check the benefits at your work.
“Too bad I don’t have kids or pets at the moment, but it gives me peace of mind to know that my work is offering this kind of benefit,” she said. “My parents already offered me 24/7 childcare for my unconceived child. My boyfriend’s mom is currently watching her grandkids 24/7. We’re lucky to have them.”
Looking into the Future
To find out how having children affects consumer debt and credit characteristics, Experian analyzed data from the fourth quarter of 2018 to see how parents matched up with their peers.
Chen’s podcasts covered opening a 529 college savings plan and planning ahead and being strategic when it comes to college financial aid.
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The long view should come in handy for parents concerned about how having kids affects debt and credit.
Through its blog, Experian suggests forecasting 18 years into the future — if you’re a new parent. Although the idea of paying for college can be overwhelming, a 529 plan can help ease the stress.
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“Generally, having children shouldn’t affect debt and credit,” Chen said. “If it does adversely, you’re probably not ready to have a kid.”
To help get prepared for parenting, see how friends and acquaintances raise their kids. Note the good things and learn from their mistakes.
About The Author
Jim Katzaman is a manager at Largo Financial Services and worked in public affairs for the Air Force and federal government. You can connect with him on Twitter, Facebook and LinkedIn.
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.