Since my partner and I began planning for a baby, we’ve had our fair share of financial discussions. How much is it going to cost to get pregnant and then deliver the baby? What items will we need to buy during pregnancy? Which baby-related purchases are actually necessary to add to your newborn checklist?
I recently ran into a friend from high school who has a 1-year-old. She mentioned that she and her husband didn’t have wills. In contrast, my partner and I had visited the bank that day to get our wills and medical directives completed.
Every couple or parent is going to have a different way of planning for their child’s future. No matter how involved your parenting style may be, it’s crucial to have an idea of the financial needs that come along with having a child.
“The biggest financial impacts come after the birth and should be planned for well in advance,” says Jillian Plank, a certified public accountant.
“Parents without paid leave will need to evaluate how long they can go without an income and implement a plan to save for the gap. Many parents are shocked by the cost of full-time daycare or nannies,” Plank continues.
“Longer-term expenses to plan for include preschool tuition, extracurricular activities, summer childcare, college, and all the clothing, food, and toys,” Plank adds.
In preparation for a newborn of our own, my partner and I used the following financial checklist to help us grasp what it means to save for a baby.
1. The Cost of Birth
Hospital and other medical fees for a standard delivery end up costing $4,500 on average, and that’s with insurance.
“Having a good sense of what your insurance will cover can help you plan for the cost of prenatal care and the birth,” Plank says. “Most insurance companies can help you understand your responsibilities and out-of-pocket maximums.”
Make sure to check with your insurance provider to see if you can reduce your costs by choosing a different hospital, doctor, or midwife, or by reducing medical interventions, if possible.
2. Health Insurance
Adding a new human to an insurance plan is going to increase the cost of your package. On average, family health insurance was $1,152 per month in 2020, a study from EHealthInsurance found. On top of that cost, medical insurance companies require you to pay a deductible every year. The same study found the 2020 average was $8,439 per family.
In addition, copayments, coinsurance, and out-of-pocket maximums can add to your family health insurance costs. These expenses all depend on a number of demographics like the size of your family or your location. Check with your insurance agent or HR rep to ensure you have the right plan for your family.
3. Completing Financial Paperwork
Before I got pregnant, my partner and I prepared wills and filled out medical directives.
We also spoke with our financial planner, who encouraged us to take out life insurance — though we still haven’t done so; considering everything else in our budget, we aren’t sure it’s a priority.
And retirement is something that always comes up. Our financial planner highlighted our need to continue to save for retirement. Though we weren’t too concerned at first, we’ve since made sure that a sufficient portion of my partner’s income is going toward retirement.
Talking with a financial advisor has been very helpful, and we continue to check in with her to ensure our finances are in order.
4. Budgeting Appropriately
Another thing you should add to your newborn checklist is budget preparation. Babycenter, a website focused on pregnancy, childbirth, and parenting, has a first-year baby costs calculator. It indicates that our estimated cost would be about $2,500.
Though that might seem low, it’s because I’m assuming we will receive a lot of the big-ticket items as gifts at the baby shower or through hand-me-downs from friends and family.
You should also consider childcare costs if you aren’t planning for one parent to stay at home. Enter your state to receive the estimated cost of childcare using this calculator.
I’m planning to be home with the baby at first. But even so, I know our finances will change drastically as the year goes on. Looking at your current budget and wondering what alterations will need to be made is something you should definitely add to your newborn checklist before the baby arrives.
Managing Finances Made Easy for Younger Generations
“Having a child is an event couples would be wise to plan for starting at least 12 months before it occurs,” says Jordan Bishop, a certified financial planner.
“If you approach saving for a child in the way you approach saving for a home, a new car, any other major big-ticket purchase, you’ll do just fine,” Bishop adds.
5. Planning to Take Time Off
The final item on your newborn checklist should be the time you’re taking off when your baby is born.
I’m a freelancer. When I don’t work, I don’t get paid. A friend of mine who just had a baby finished medical school only a few weeks before the baby arrived. She is spending the next 12 weeks applying for jobs. Her hope is that she will be employed by the time the baby is old enough to go to daycare.
Another friend, who was in school and working a handful of jobs during her pregnancy, decided to take a semester off. But she had saved enough by working at a summer camp and taking out some student loans to last a few months without a stable income.
Additionally, this friend, as a single parent, applied for government assistance to support the baby.
Some people are lucky enough to receive paid time off. Others qualify for only the standard 12 weeks of unpaid leave from the Family Medical Leave Act.
Take a look at your finances and see how long you can afford to go without pay. If you have a partner, they may also want to take time off. How will that affect your finances?
6. Cost of Raising a Child
The total amount of money it takes to raise a child from birth to age 17 is $233,610, according to the United States Department of Agriculture.
Then, of course, there is the discussion of sending our child off to college and what that would mean financially.
My partner and I have already started thinking about college, especially because of the rising costs in education.
How much will we need to save to send our children to college? Should we plan for a specific type of school? Do we make it a priority for our kids to pay for some of their college themselves?
Regardless, we’re starting a college fund as soon as the baby arrives. Opening a 529 Plan — an account that helps save funds specifically for college — is definitely something to consider.
The Bottom Line
Having a baby is a life-altering experience. It can be easy to get wrapped up in the excitement of collecting enough onesies and bonnets to last a lifetime. ‘
And though you have every right to drool over the cuteness of your newborn’s wardrobe, there are more pertinent purchases and financial considerations that must be weighed on your newborn checklist.