Becoming a parent is a significant life-changing event. As you prepare for parenthood, there are several things you’ll want to consider. For one, your financial situation might be completely turned upside down after the baby arrives, especially if one parent leaves the workforce for an extended period of time. Your priorities, and financial circumstances, will likely shift.
Expenses Start from the Very Beginning
Whether you’re pregnant, adopting, or just beginning to consider starting a family, it’s time to take a closer look at the financial aspects of becoming a parent and saving for kids.
For many parents, the financial responsibilities involved with having a child start before the baby arrives. For example, there’s the cost of maternity care, labor, and delivery to consider. For a healthy birth with no complications, you can expect to pay about $9,700 out of pocket. If a Cesarean section is required, the average out-of-pocket cost is $12,500 – and if there are complications during delivery, costs can escalate to hundreds of thousands of dollars.
Keep in mind that the costs of labor and delivery are often not factored into the overall costs of raising a child, which as of 2015, was $233,610 for the average, middle-class family. This total also doesn’t include college expenses.
For some parents, there might also be the cost of in vitro fertilization (IVF) or other fertility treatments. Sometimes, insurance companies will cover IVF expenses, but if they don’t, that alone can be nearly $13,000.
Other parents may also be considering adoption – another expense that isn’t factored into the overall total of raising a child. The exact costs will vary depending on if you decide to adopt internationally or stateside. International adoptions tend to average about $42,000, while domestic adoptions are around $37,000.
Financial Prep for Parenthood: Steps to Take to Get Ready
While raising a child isn’t cheap, few things can compare to the joys of parenthood. You’ll just want to take steps to ensure you’re financially prepared beforehand. Here’s what you can do.
1. Start Saving – If You Haven’t Already
First and foremost, start saving. It’s important to have an emergency fund in place before you become a parent, and afterward, having money set aside for an emergency situation becomes even more important. You’re not just saving to protect yourself. You’re now saving to protect and support your child, as well.
Along with saving for an emergency fund, which can cover unexpected expenses, such as an illness or car repair, or everyday expenses if you lose your job, it’s a good idea to start saving for the costs associated with becoming a new parent – labor and delivery, food, clothing, diapers, etc. You might also be facing additional expenses related to raising a child while bringing in less income if one parent takes maternity or paternity leave or decides to leave their job to care for your child.
As you save for these upcoming expenses, don’t stop saving for retirement. While taking care of your family’s present needs might seem more important, it’s also critical that you don’t stop preparing for the future.
2. Manage Healthcare Costs
Your pregnancy and delivery costs depend largely on the type of health insurance policy you have. Under the Affordable Care Act, all qualified health insurance plans need to provide coverage for maternity care and childbirth – but you’ll still likely have some out-of-pocket expenses to consider.
The amount of coverage offered varies based on the policy you have and whether or not your OB/GYN is in-network. You’ll usually pay considerably more to see an out-of-network provider.
Your costs will also vary based on the type of delivery you have, where you choose to deliver, and any possible complications before, during, or after birth. Since you have no way of knowing what will happen on the day your baby decides to make their first appearance, it’s crucial to plan for the “worst-case” financial scenario, so you’re not surprised by the expense.
One way to keep your expenses in check is to review your health care coverage options carefully when you begin to consider growing your family. If your current plan doesn’t provide much in the way of coverage for maternity care or delivery, you might want to switch to a new plan, if possible, during the next Open Enrollment Period. Insurers can’t treat pregnancy as a pre-existing condition, so you should be able to change plans and get the coverage you need even if you’re already pregnant.
You might also want to see if you can use a health savings account (HSA) or a flexible spending account (FSA) to cover the medical expenses of having a baby. Review your insurance plan for details on what health services or supplies you can use the money in this account for and the length of time you have to use your contributions.
3. Plan for Insurance Costs
Once you have a child, you need to be more prepared for the “what if’s” in life than ever before. What if something happens to you? Who will provide for your child? If you can’t work anymore, how will your family make ends meet?
Even if you currently have insurance, it might be a good idea to adjust your policy before the arrival of your child. There are a few different types of insurance policies that are worth considering if you don’t have them already.
- Disability Insurance: Your employer might offer a disability insurance policy in case you become ill or injured and are unable to work for a period of time. If not, you might want to take out one on your own. When looking for a policy, choose one that will cover your family’s living expenses in full for the length of your disability.
- Life Insurance: Life insurance pays a benefit to the named beneficiary in the event of your death. Even if only one parent works outside the home, it’s a good idea for both parents to have a policy. There’s a wide variety of policy options to choose from, so it’s likely you can find one to fit your needs.
- Health Insurance: You’ll want to add your child to either your own or to your partner’s health insurance plan after birth. Having a baby or adopting a child is considered a “life event,” so you will qualify to change your policy. If you don’t have health insurance available, you’ll want to look into government-sponsored options, so your child has coverage.
4. Consider the Cost of Childcare vs. Stay-at-Home Parenting
For some new parents, the idea of transitioning into a single-income household can seem impossible. But, depending on where you live and your income, the cost of childcare may be nearly the same amount as a working parent brings in.
In Pennsylvania, for instance, the average monthly cost of childcare for an infant is about $887, or $10,644 a year – which is nearly 16% of the average family’s annual income. If you have more than one child, the cost goes up from there. For a four-year-old and an infant, for example, the monthly cost is about $1,559.
What option you’ll use for childcare – whether it’s through a daycare, a nanny, a family member, or a parent who stays home – is a big decision only you can make. Here are some options to consider:
- Daycare Center
Sending your child to a daycare center could be an affordable childcare option. Some of the benefits of daycare include:
- Opportunity for increased socialization. Your child is regularly around other children, giving them an opportunity to hone their socialization skills.
- Ability to participate in a variety of activities. Most daycare center teachers are specialists when it comes to early-childhood education. They can provide a mix of activities and resources appropriate for your child’s development level to keep them engaged.
- Set operating structure. There are specific times for drop-off, pick-up, and more, which parents may find helpful when planning their schedules.
Some of the disadvantages include:
- Difficult adjustment period. If your child is sensitive to being around too many people, too much stimuli, etc., they may have a difficult time in a daycare setting.
- Increased exposure to germs and illnesses. Since your child is around other children regularly, they may end up sick more often, which could lead to increased doctor visits and missed time at work.
- Need for backup care. If your child is ill or if the center is closed for the holidays or bad weather, you’ll need to have a backup plan in place or be able to stay home from work.
With a nanny, a single person is providing care to your child at your home. Though it’s more expensive – over $550 per week on average – it might be the best type of care for your child. Some of the advantages of having a nanny include:
- Control over your child’s day. With a nanny, you have more say in what your child does, where they go, and their daily schedule.
- One-on-one care. Because your child is the only one the nanny is looking after, they receive one-on-one care. This can be crucial for younger children, as well as those who might be sensitive to new and unfamiliar situations.
- Elimination of drop-offs and pick-ups. There’s no worry about having to allow extra time in the morning or afternoons for drop-off or pick-up since your child can stay at home. The extra time will also allow them to sleep in.
Some disadvantages of using a nanny include:
- Taxes and paperwork. Your nanny is your household employee, so you need to pay certain taxes and provide vacation days, sick days, etc.
- Need for backup care. If your nanny is sick, you need to have a backup plan to care for your child.
- Stay-At-Home Parent
If one parent stays at home with your child, you can avoid the cost of childcare, but will be operating on one income. Still, if your family can manage it, there are some advantages of being a stay-at-home parent.
- Being there for all those “firsts.” The first time your child laughs, sits up, crawls, or walks – they’re all significant milestones in your child’s life, and you’ll be there to see them.
- More time with your child. Since you’ll be your child’s primary caretaker throughout the week, you’ll spend more time with them. You’ll likely also have more flexibility to prepare meals, clean, and do other necessary household tasks.
- No missed workdays. If your child wakes up with a fever or ends up sick in the middle of the day, you don’t need to worry about taking time off work to pick them up.
There are also some disadvantages to staying at home with your child. Aside from reduced income, a couple of others include:
- Feeling lonely. Especially if you have a very young child, it is easy for a stay-at-home parent to feel isolated. You might also not feel like you have much in common with other stay-at-home parents, which can increase feelings of loneliness.
- 24/7 workload. Being a stay-at-home parent comes with few breaks and minimal or no downtime. And if you’re sick, unless someone can help you, you’re still responsible for caring for your child.
Since each choice has its pros and cons and there’s no one-size-fits-all solution, it’s important to sit down and talk with your partner about which option will work best for your family.
5. Put Together Your Parenthood Budget
A new baby or child brings with them a lot of additional expenses, from higher insurance premiums to extra food costs. As you get ready to welcome your new family member, it’s time to put together a budget that considers your new expenses.
When you’re creating your budget, it’s very likely that you’re going to have to reassess your financial priorities. Things that may have seemed important during your pre-parenthood days, such as spending on designer clothing or going out to a pricey restaurant once a week, are likely to be less important once the baby arrives.
You’ll want to work together with your co-parent or partner when creating your budget. Sit down together and ask yourselves the following:
- How much income will we bring in after the baby is born or once the child arrives? This is where you’ll need to determine if both parents will return to work or if one will remain at home with your child — and for how long.
- What expenses will our child have? In addition to food, clothing, diapers, toys, etc., be sure to consider things like healthcare, dental care, and other potential health-related costs.
- What is the total amount of our current monthly expenses? When considering this component, understand your needs vs. wants to make it easier for you to see where you can make adjustments.
- When we add up new and current expenses, will we have enough to cover them once the baby arrives? You may want to slightly overestimate new expenses. For instance, you probably won’t have to buy clothing for the baby every month, but add a set amount for all of the baby’s needs to your budget to be sure expenses are covered if you do.
- If our expenses are too high, what can we eliminate? Having a child doesn’t mean you need to give up all entertainment and fun, but you might want to consider eliminating things like cable or various monthly subscriptions, such as magazines, you can live without.
- Are there expenses that we can reduce without eliminating? If you really enjoy going out to eat or renting movies on a Friday night, keep in mind that you might be able to reduce the frequency at which you do them without avoiding them entirely.
6. Give Your New Budget a Trial Run
Even if both parents return to work after the child arrives, there may be a period when one or both of you are out on leave. Although some employers are required to give employees up to twelve weeks of medical leave under FMLA, that leave doesn’t have to be paid, which means you may be missing out on up to twelve weeks’ worth of income.
To help get acclimated, put your parenthood budget into practice before your child arrives, so you can get a feel for what it’ll be like. You can put money from current income you’ll be losing or for bills you’ll be paying into a savings account during this time, which can help you build up an emergency fund or give you a cushion of savings to cover any unexpected child-related costs.
If you find that it’s difficult to live on your new budget during your trial period, you have time to make some adjustments, such as cutting out additional expenses or finding ways to save money.
Costs of Raising an Infant
What costs can you expect when preparing for your new child or during the first year of parenthood? It depends on what your income is, but take a look at these stats released by the United States Department Agriculture (USDA).
For a child up to two-years-old, the following income categories can expect to spend these totals annually – this does not include housing expenses, an average of 29% of the total cost of raising a child:
1. Households earning less than $59,200:
- Food: $1,310
- Clothing: $670
- Healthcare: $820
- Transportation: $1,200
- Miscellaneous: $450
Annual total: $4,450
2. Households earning between $59,200 and $107,400:
- Food: $1,580
- Clothing: $750
- Healthcare: $1,180
- Transportation: $1,790
- Miscellaneous: $830
Annual total: $6,160
3. Households earning more than $107,400:
- Food: $2,210
- Clothing: $1,110
- Healthcare: $1,580
- Transportation: $2,590
- Miscellaneous: $1,650
Annual total: $9,140
How to Save Money as a New Parent
If the roundup of typical new parent costs has you reeling, don’t worry. There are ways to cut expenses when raising your child. The costs above are just estimates from the USDA. Your expenses could easily vary based on your specific situation. Here are a few tips to help you save money during your first year as a new parent.
- Go big when buying clothing. Most babies will quickly outgrow sizes designated as “newborn.” Some babies are even born too big to fit into newborn sizes. To get the most out of your baby’s clothing, limit the amount of newborn clothes you buy so you can get more use out of them.
- Opt for secondhand clothing when possible. Your baby doesn’t have a sense of style yet – they won’t know you’re dressing them in their cousin’s hand-me-down onesies from 2005. Even if you don’t know anyone with gently used baby clothes to offer you, you can easily find secondhand clothing at local thrift shops and consignment stores for a fraction of the price. The best part? Babies grow so quickly and are often gifted more clothing than they can wear, so many of these clothes may still have tags or be like-new.
- Make your own baby food. Jarred baby food is convenient, but it adds up. Instead, try mashing up cooked vegetables and fruits to create your own culinary concoctions for your little one to enjoy. Avoid buying baby-specific products for this – your regular food processor will do the job equally well. Additionally, if your child requires special dietary formulas, it’s possible they’re covered by insurance. Be sure to check your state laws and insurance information for details.
- Create a registry. Whether you’re having an infant or adopting an older child, don’t be shy about registering for gifts or letting your family and friends throw you a shower. Along with getting much-needed supplies for parenting, you might also get a few gift cards, which can help reduce your costs in the future.
- Avoid “baby”-labeled items. For example, you don’t have to get a diaper bag specifically for baby’s diapers. A tote bag with pockets or a backpack will work just as well. Plus, once your child is out of diapers, you can repurpose the bag as a regular tote or backpack.
Need Financial Assistance as You Start a Family?
Sometimes, even with the best of planning, the costs of becoming a parent might be more than you expected or can pay for up front. Whether you need additional funds to cover the cost of IVF, adoption fees, or maternity care, a Signature Loan from PSECU can help. To learn more about our loan options, get in touch with us today. For more money tips for parents, visit our blog.