There’s never a perfect time to have a child. But there are better times than others – namely, when you have a plan in place.
Planning ahead is especially important today because child-rearing isn’t cheap. A recent USDA report estimates that it costs a middle-income family, on average, $245,340 to raise a child. In the first two years of a child’s life, parents will spend somewhere between $10,000 and $15,000, depending on where they live, according to the USDA.
So, without further ado, here are 10 tips to ease the financial burden of parenthood.
1. Get smart about parental leave
In the U.S., new mothers are entitled to 12 weeks of maternity leave annually (under the Family and Medical Leave Act), but there is no requirement that employers provide any salary during the leave. That said, many states require employers to offer some compensation or benefits during maternity leave.
Given the variation from one state to the next, your best bet is to start by reviewing your employer’s parental leave policy. Most companies provide their policy in an employee handbook, which the human resources department maintains. When you read the policy, make sure that you:
- Figure out what happens to your pay while you are on leave. Many employers offer a sliding scale. For example, you receive X weeks at full pay, followed by Y weeks at half pay, and then Z months unpaid.
- See if you can supplement your leave by using your vacation and sick days.
- Check the paternity leave policy.
- Find out if you’ll be expected to be available at all during your leave.
If you’re having trouble finding answers or just want to double check your understanding of the policy, don’t hesitate to discuss your options with HR.
2. Evaluate your housing options
Housing accounts for roughly 30% of child-rearing costs – the largest child-related expense – according to the USDA.
So, unless you’re swimming in cash, you should evaluate your housing options before the baby. Are there more affordable options that meet your needs? Are there good schools near your current place? Or will you feel obligated to send your child to private school?
While moving isn’t fun, moving with an infant is worse (and potentially more expensive). Avoid the headache and plan your housing situation ahead of time.
3. Review your health insurance
Another consideration is health insurance. Before your newest member of the family arrives, try to understand how he or she will affect your healthcare bills.
Normally, babies are automatically covered under your health insurance for the first 30 days of life. But even if that’s true for you, try to figure out your insurance options before you’re knee deep in diapers and two-hour sleep patterns.
The main questions to answer are (1) which insurance plan you will add the baby to, based on cost and level of care, and (2) approximately how much will doctor’s visits cost, considering out-of-pocket expenses for co-pays, deductibles, and co-insurance.
4. Develop a plan for working and childcare
So your baby is born and maternity/paternity leave is dunzo. What next? Will one of you stay home with the baby? Will one of you work part-time? Or will you both go back full-time? Whatever you decide will impact your budget and how much you should set aside, so think it through earlier, if possible.
If you’re toying with the idea of staying at home, give it a trial run – live off one person’s salary and send the other’s straight into a savings account. Not only will this give you a chance to see what life is like on a single income, but it also helps to build your savings for that expensive first year.
Also, as you consider your options, remember to account for the costs of child care. Depending on where you live, the average cost of infant child care per year ranges from $4,882 (Mississippi) to $22,681 (D.C.), according to the Economic Policy Institute. Even if you’re lucky enough to have family nearby, don’t just assume that they will help out. You should discuss their availability and expectations before counting your chickens.
5. Plan your estate
Drafting a will may feel morbid, but it’s necessary. Sure, the chances of something happening to you are small. But you shouldn’t leave your family’s well-being to chance.
If you’re lucky enough to have significant wealth, consider establish a trust in your child’s name to avoid going through the lengthy process of probate.
6. Be smart about new baby buys
First-time parents are inexperienced and determined to be the best parent ever, making them ideal prey for unscrupulous marketing (read “susceptible to buying dumb things”). Baby wipe warmers, bottle sterilizers, bouncers – how can you tell what’s necessary and what’s a waste?
Try talking to friends with children about their experience. Ask them what items they found essential, and what they bought but wish they hadn’t. If you’re not sure about a purchase and on a tight budget, remember: people have raised children for quite a while without baby bath hats and baby food makers, so don’t overthink it.
Also, a word for the wise: if you’re considering having more than one child, buy gender-neutral items when you can.
7. Think about purchasing life insurance
Another “morbid but necessary” topic. By taking out a life insurance policy and keeping it updated, your family will be financially cushioned in the event that something happens to you. That’s especially important if you’re the breadwinner.
8. Make the most of friends and family
Don’t be shy about asking for help as the baby gets closer. People often want to pitch in for new parents but aren’t sure what to do. If your short on ideas, here’s a list of 10 ways that friends and family can help, which includes dropping off good meals and sharing stories of their own parental screw-ups.
If you have a baby shower, be smart – ask for practical gifts. If you need something big like a crib or a stroller, ask guests to consider pitching in together, rather than buying silly knickknacks. #BabyHighHeels
9. Start saving for college
The average cost of college per year in the U.S. (including tuition fees and living expenses) is $36,564, according to a recent report. In 18 years with 3.5% inflation, that would make average tuition approximately $68,000 per year.
So while it may seem like forever from now, saving for college will take some time. If you’re able to set money aside early and invest it, the extra time will let interest work its magic. And if friends or family want to do something for the baby, consider suggesting that they put money into a college fund.
10. Review and update your budget
Last but not least, remember to review and update your budget before the baby arrives. The early days of parenthood are exciting but financially precarious. You’re out on leave, your income takes a hit, you don’t sleep much, and you have various expenses for the baby. Build up the nest egg now so that you can spend less time worrying about money and more time wondering how your baby is so damn cute.