If you’re a Quarterlifer, there’s a chance that you may be preparing to start a family sometime soon. And, whether that momentous life event is five years or five months away, if it’s something you think you may want in your future, you should continue reading. Because like many things in life, children can be expensive.
According to the U.S. Department of Agriculture, it costs the average middle-income family $234,900 to raise a child from birth to age 18. And that number is up 23% from what a family spent on children in 1960 (adjusted for inflation)!
Often times, future parents don’t realize all of the costs and expenses that come with bringing a child into the world. But don’t worry – that’s what we’re here for! And we know that sometimes those bundles of joy may come when you weren’t planning, but at least you have nine months to get your ducks in a row. Take a look at your finances and start preparing as soon as you can. Below are the top items you should consider and plan for when it comes to preparing for a baby.
• Take a look at your insurance. The first thing you should do is to research what your health insurance offers in terms of prenatal care. This could even be done before you get pregnant. Ideally, you can pick which policy between yours and your spouse’s offers the best benefits and you’ll have time to switch if you need to do so. You should also look into benefits for infants, including check-ups, because they’ll definitely need those!
• Evaluate your lifestyle. This might be painful to read, but pre-baby is when it’s time to take a good look at your lifestyle and evaluate your monthly budget. Do you really watch all of those hundreds of channels on TV? Could you do without the premium channels? Determine your needs and wants and make adjustments if needed.
This is also the time to discuss with your spouse how your household will accommodate the new arrival. Will one of you be a stay-at-home parent? If you are both going back to work, will the child go to daycare? These are all extremely important questions to ask in advance that could have a major financial impact.
• Make a baby budget. Run the numbers on what your new expenses will be once the baby arrives (and even before!). This includes everything from copays for check-ups and ultrasounds, a crib, baby formula, diapers, etc. But don’t worry – you will save in other ways. Most likely, your dollars spent on eating out, entertainment and travel will decrease dramatically. But don’t forget to budget for an occasional night out, which includes a babysitter!
• Test drive living on a lower monthly income. On a related note to the above, your household should also practice living on whatever monthly income you will have once the baby arrives. If one of you will be leaving the workforce to take care of the new baby, start living on one income before the financial changes go into effect. Though you may have the extra cash coming in for a few more months, this is the time to start mentally adjusting to the change and putting that money aside in savings.
• Increase that cash cushion. Hopefully we’ve done our job and have taught Quarterlifers the importance of saving three to six months’ worth of expenses in case of an emergency. When a child is involved, this becomes more important than ever. Not only will your monthly expenses increase, but the chance of an “emergency” or additional, large expense occurring increases. You won’t be able to plan for every health situation or possible hobby your child may pick up, so bump up the amount of money you stash each month in your rainy day fund.
Hopefully, these numbers haven’t scared you (too much) away from having a child in the future. Planning and budgeting is key, so visit us soon to help develop your personal savings plan! We’re always here to help.