Cribs, diapers, toys, financial plan
Congratulations! You have a baby on the way or already at home. First-time parents are typically excited, flustered, nervous, and distracted – all at once. And usually, money matters are the last thing on their minds. But financial problems have a way of creeping up on us. So it’s best to be forewarned about some of the budget issues that will come along with that little bundle of joy. No need to sweat it, but forewarned is forearmed.
- Costs can be an eye-opener
The cost of essentials like diapers, baby furniture and equipment, clothing, and formula (and later, baby food) can come as a surprise. If both parents plan to keep working after the first few months, you’ll also have to plan for childcare costs – which can be steep, running from a few hundred dollars a month to $2,000 or more if you plan to have live-in help.
- What you earn, what you spend
Baby’s arrival often results in a temporary drop in income. “Having another mouth to feed” is no longer a quaint saying from back in the day. You’ll have to adjust your spending habits accordingly. Take a really close look at all that discretionary spending you did before – eating out five times a week, say, or all those shows, concerts and clubs, and spur-of-the-moment travel and cruises. Maybe you weren’t keeping track (surprise! most people don’t), but it all adds up to thousands of dollars in savings.
- Save more now!
Start a disciplined savings program during pregnancy. In fact start one before. Really, it’s good advice for everyone, but especially if you’re expecting, because you’ll need those funds during maternity leave, during which your income will typically drop. Save what you can, but ideally, set aside 20% of your after-tax income in the year or two before baby arrives. Talk to a financial advisor about investing your savings in assets that produce a good return at a risk level you can live with. Dividend-producing equity or income funds are a popular choice. Make regular deposits so that your saving becomes like a routine expense.
- Pitch the plastic
During pregnancy and in baby’s first year, stay off credit. Do not put more on your credit card than you can pay off fully every month. The last thing you want to deal with during that busy first 12 months are credit card balances carrying interest of 20% or more. Better yet, put the card away, and use your debit card or cash for routine purchases. It’s a good way of forcing you to think ahead and control impulse buying.
- Expect the unexpected
No one likes to think about it, but now you have family responsibilities. What happens if you become ill or disabled, incur large medical expenses, or pass away?
Getting the right type of health, disability, and life insurance, depending on whether one or both of you continue working during baby’s first year is a critical part of financial planning. An employer’s benefits plan may offer some medical and disability coverage for the employee and his or her dependents. If not, a number of insurers offer separate basic medical and disability plans with at least a minimum level of protection.
Life insurance is another must. It needn’t be complicated or expensive – term life plans, for example, are extremely economical. But you still need to budget for them.
Perhaps most important, make or revise your wills. Again, this needn’t be a costly exercise, but it’s an essential part of financial planning.
The sooner you start applying these basic baby-budgeting principles, the better. If it all seems a bit overwhelming talk to a Certified Financial Planner, someone who’s well-trained in the art and science of family financial planning. Check with friends, family, and colleagues first for referrals to a reliable and accredited planner. You can also use the search tool available on the Financial Planning Standards Council website to look for planners in your area.
© 2015 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.