Children and Family Finances
A report from the government has made it official: Babies are expensive. According to data compiled by the U.S. Department of Agriculture (USDA)and updated to today's dollars using the Consumer Price Index, the typical middle-income couple will spend at least $883 a month on their baby for the first 24 months -- and the costs only climb after that.
Consider that in metropolitan areas such as New York, Chicago, and San Francisco, the expenses are likely even higher. If that were your car payment, you could be driving a Mercedes. But if there's a baby in your future, you'll be spending that money on more important things, like health insurance, food, day care, and diapers. In fact, according to the USDA, a middle-income couple could spend about $200,000 by the time the child is 18.
Whether your baby is well on its way or just a twinkle in your eye, you need to take a hard look at your family finances -- and the sooner the better. No matter what your situation is today, it's about to change. You'll have to make some decisions and come up with a plan.
The first thing you should do is estimate your current living expenses. Keep track of all your costs, including rent or mortgage, utilities, clothing, food, insurance, transportation, and entertainment. Then compare it to your monthly income and see what you have left over. If it's less than $800, you'll probably have to start cutting back.
You'll also need to think about how the baby will affect your income. Will you have to quit your job or take any unpaid maternity leave? If so, you might start saving now to compensate for that lost income. It will be good practice for when the baby arrives, and you might be able to put a little extra money into savings.
Some couples actually find that they're better off financially when one of them stays home with the baby. The savings in day care, work clothes, transportation, and meals on the run can more than make up for the loss of income. The University of Michigan offers a worksheet to help parents understand the costs of staying home vs. going to work: http://www.med.umich.edu/1libr/pa/pa_nprecost_pep.htm.
You also need to consider the costs of the actual delivery. How much of it will be covered by insurance, and how much will come out of your pocket? If you're still just thinking about starting a family and can afford health insurance, you can shop around for a policy that's right for you. If the baby is already on its way, you still have time to switch policies. Just make sure that the new policy covers pre-existing conditions.
If you can't afford health insurance, check with your local March of Dimes office about child health insurance programs in your state. Depending on your situation, you should be able to get free or low-cost coverage.
Speaking of insurance, all new parents should have some life insurance. A term policy is the least expensive option, and it will give you peace of mind. The March of Dimes also urges all primary breadwinners to get disability insurance. If you don't already get adequate disability insurance from your employer, you should buy more. Although most of us don't like to think about it, it's also important to make a will and name the person you want to take care of your child if something happens to both of you.
When you need to take a break from all of this planning and number-crunching, by all means go out and buy some baby stuff. Shopping for little outfits and toys is fun, but be sure to get some of the essentials as well (crib, stroller, blankets, and so on). Otherwise, you'll soon discover that you could easily blow your whole monthly budget, especially if you always get top-of-the-line items.
With a little sleuthing, you can also discover some tremendous bargains. Since babies quickly outgrow toys and clothes, you can find many inexpensive and lightly used items in secondhand children's stores, thrift shops, consignment stores, want ads, and garage sales. The items you don't want to scrimp on are cribs, car seats, and baby monitors. Get new ones if at all possible. If you do buy a used crib or car seat, check for recalls and make sure they meet current safety standards. As for the car seat, make certain the used one you're considering hasn't ever been in a collision.
If you haven't already noticed, finances can be a major source of conflict for couples. And a new baby in the house will only turn up the heat. Instead of fighting about money, partners should focus on having regular discussions about their current situation, their short- and long-term goals, and what they need to do to reach those goals.
Babies really are expensive. But are they worth it? When you get yours home, you won't even have to ask.
University of Minnesota Extension Service. The cost of raising children. http://www.extension.umn.edu/distribution/businessmanagement/DF5899.html
March of Dimes. Ka-ching! Financial planning for baby. http://www.modimes.org/pnhec/173_14007.asp
U.S. Department of Agriculture. Expenditures on Children by Families.Center for Nutrition Policy and Promotion. No. 1528-2004
Kiplinger's Personal Finance. Can One of You Afford to Quit? http://www.kiplinger.com/personalfinance/tools/managing/afford.html?
San Francisco Examiner. Child-care costs high for S.F. workers. http://www.c5children.org/events/SFExaminerChildCare.pdf
U.S. Department of Agriculture, Expenditures on Children by Families. http://www.cnpp.usda.gov/Publications/CRC/crc2006.pdf