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.
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.
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.
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.
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.
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.
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:
Sending your child to a daycare center could be an affordable childcare option. Some of the benefits of daycare include:
Some of the disadvantages include:
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:
Some disadvantages of using a nanny include:
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.
There are also some disadvantages to staying at home with your child. Aside from reduced income, a couple of others include:
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.
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:
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.
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:
Annual total: $4,450
2. Households earning between $59,200 and $107,400:
Annual total: $6,160
3. Households earning more than $107,400:
Annual total: $9,140
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.
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.