Budgeting for a Baby

Bringing a child into the world is a wonderful experience, but it's also very expensive! It's as easy to overlook things as it is to buy things that you don't really need. If you're going to be a new parent, you need to understand your finances and how they will change when your new bundle of joy arrives.

How much it costs to raise a child

There are few events in our lives that impact our financial plans as much as having children. New expenses seem to materialize out of nowhere. Diapers, baby food, doctor visits, clothing, and daycare costs are all items new parents have to deal with. From the time you first become aware of your pregnancy, to your child's 18th birthday, you'll incur bills totaling hundreds of thousands of dollars that you never expected. In fact, according to a U.S. Department of Agriculture, it currently costs $241,080 to raise a child to 18 years of age - and that's before you factor college tuition in! The earlier you start budgeting for children, the better.

As your child grows, expenses like food and clothing increase steadily. Many parents find it necessary to move into a larger home and buy a larger car. Additionally, there are the costs you never think about when initially thinking about the cost of raising a child. Costs such as after-school tutoring, sports/lessons, and unexpected emergency room visits are just some of the things that are impossible to plan for due to the fact that they are sporadic in nature.

It is important that you accommodate these new expenses wisely and don't spend money you don't have on things that aren't in the "absolutely necessary" category. Building unnecessary credit card debt is the last thing that you need to be doing as you enter into parenthood. It's important to save and plan so that you can handle this tremendous life-changing event. Here are some ideas to help you prepare your finances for your new arrival:

Set up a Budget

It's best to create your budget before your baby is born. If you wait until after they arrive, you'll likely be in a different frame of mind and it might not be as accurate as it needs to be. During your pregnancy, take a few months to keep track of ALL of your spending on monthly bills, and do your best to estimate any expenses for which you don't have receipts. This way you'll know where you can make cuts when your baby arrives.

Ask Yourself "Will My Baby Need This?"

Speaking of your budget, you're going to have a lot of things to get both before and after the baby arrives. Before you load up your shopping cart, and credit card, with purchases, step back and think about each purchase. Does your baby need a stroller? Absolutely. They don't, however, need a $600 stroller that comes with all the bells and whistles. Functional, safe strollers can be found for a decent price and your baby will be none the wiser. And, please, put those $50 fuzzy snow boots down. We know they're tempting, but your newborn won't be dashing through the snow anytime soon. Booties and socks will do the job just fine until they learn to walk and actually need shoes.

Assess Your Daycare Needs

It is important to weigh the pros and cons of daycare against the potential income you stand to make if you return to work. While having a fulfilling career is important to some, the joy of raising children is equally satisfying. If the math doesn't add up, you may choose to raise your children until they are old enough to go to school. After all, there's no sense in working hard just to have your entire paycheck go to daycare services. In fact, according to a report from Child Care Aware of America, the average annual cost of full-time care for an infant in center-based care ranges from $4,863 in Mississippi to $16,430 in Massachusetts.

If you decide that daycare is the best option for your family, do as much research as you can. Find out details such as cost, hours of operation, and which age ranges the provider accepts. Take the time to learn about the credentials required for a daycare provider to operate in your state so you know you're hiring a qualified agency. Speak with friends and coworkers about their experiences. Your child may be spending a lot of time with the daycare provider, so take the time to choose a good one. For more information about daycare providers, contact the National Child Care Information Center.

Talk to Your Friends and Family

Your friends and family members that have raised children already can be a terrific resource for you once your new baby arrives. Their experiences may be extremely helpful to you, especially when it comes to planning for expenses that you may not have anticipated. They will also be able to reassure you that your child will grow up just fine without the newest bouncy seat on the market. You never know, you might even get free babysitting services from some of them!

Health Insurance

Review your health insurance policies for coverage of: prenatal care, deliveries, and hospital stays. Can you choose your own pediatrician, or do you have to stay in the health plan's network? Carefully review your coverage and deductibles and save as much as necessary to ensure you're prepared to deal with the birth comfortably.

Life Insurance

Reevaluate your and your spouse's life insurance plans. If the rates will be cheaper for a family with a different policy than your current one, it may be a good idea to make a switch. Make sure that your child will be taken care of if something happens to you. If you already have a policy, review your coverage to make sure it's sufficient to help your child and your spouse in the event you're no longer there.

Disability Insurance

If you don't have any, you may want to consider getting some. If either you or your spouse becomes unable to work, how will your income be replaced? Things like utility bills, groceries, car payments, will still need to be paid in the event that you or your spouse is unable to earn an income. If you add hospital bills into the mix of things, your lifestyle is at serious risk. Your life savings could be completely washed out if you don't have disability insurance. If it's not offered by your employer, consider looking elsewhere and putting you and your spouse on a plan as soon as possible.

Prepare for College

State-sponsored college savings plans are available (referred to as 529 plans because of their section in the Internal Revenue Code). A 529 plan is an investment plan operated by a state, designed to help families and individuals save for future college costs. As long as the plan satisfies a few basic requirements, which vary by state, the federal tax law provides special tax benefits to you. For more information on 529 plans, visit the 529 Question and Answer page on the Internal Revenue Services' website.

Create a Will

It's understandable that you might prefer to avoid such an unpleasant subject as a will, but do you really want the state to appoint a legal guardian in the event of your death? You should decide who would take care of your children if something happens to you. Don't just pick the first person that comes into mind. Choose a couple, or individual, that will raise your child as you would and make them feel most comfortable as they go through life. Your parents may seem like the most convenient choice, but take into account the age of your child's guardian and if they'll be able to provide for them if you weren't there?