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Congratulations – you’re expecting a baby and getting a whole lot of advice! And advice for soon-to-be parents can be overwhelming and often times conflicting. Everyone you know (and don’t know) seems to have an opinion about how to raise your future child.
Financial advice in particular can be challenging because it’s probably the last thing you want to think about. After all, preparing for a child should be a joyous experience, not one that involves calculators and difficult conversations. But with a little planning, you can help ensure your own financial security – and your kids’ – for years to come. Some of this you’ve probably already heard, but now is the time to start putting those words of wisdom into action.
Spoiler alert: kids are expensive. According to the most recent report from the Department of Agriculture, middle-income, married-couple parents can expect to spend $233,610 to raise a child born in 2015 from birth to age 17. And that’s just one child. Up that number by a lot if you want multiple kids, or if you want to pay for your kid(s)’ college education. Not to mention extra-curriculars or other hobbies you might want to nurture. Those music classes and swim lessons are going to come with a cost.
"If both parents are planning on returning to work, arranging childcare will require significant planning and will likely be your biggest expense."
The point is: Be realistic about the cost of having kids. This article can help you start to estimate some of the costs, but do your own research. If you think you’ll need to adjust your current lifestyle, decide what trade-offs you can make. Alternatively, consider if you need to generate more income so that you can maintain your lifestyle. If you can afford to have it all, good for you. Either way, it helps to know *generally* how much having a kid is going to cost you.
Start by accounting for all of the expected expenses – bibs, bottles, clothing, etc. If both parents are planning on returning to work, arranging childcare will require significant planning and will likely be your biggest expense. In a recent survey conducted by NPR, many parents said they struggled to find childcare. Once those parents found childcare, 71 percent identified the cost as a serious problem. On top of that, in major metropolitan areas where childcare is already expensive, there can be waitlists for getting into daycare. Unless you have parents or other family members who are willing to offer free help (lucky you!), you can expect childcare to be a major cost. Shop around and look for options ahead of time.
Don’t forget there are costs for the actual pregnancy too (doctor’s visits, maternity clothes, delivery fees, etc.) that can rack up.
Add up all those numbers and then plug them into your current, pre-baby budget. If your new budget is kind of terrifying, again, look at spending areas where you can scale back. Your social budget might be the easiest place to start, because let’s be honest…you won’t have much time for that anyway. (You’ll be spending it with your little bundle of joy instead!)
If this is making your head spin because you’ve never budgeted before, don’t worry. There are many different budgeting methods out there. The key is choosing a method that works for you and then trying to stick with it.
On sticking to your budget: The baby industry is HUGE – and very enticing. While all of those clothes and toys are adorable, the reality is the stores selling them ultimately want your money. There are also plenty of companies that will prey on your fears of becoming a parent and try to sell you stuff you might not have otherwise considered buying (apologies to anyone who bought baby knee pads).
Remember, humans have been reproducing for centuries without all of the things you will be tempted to purchase. Obviously there are modern day necessities and you shouldn’t feel guilty about indulging on a few items, but try to avoid getting sucked into buying anything and everything that will undoubtedly be marketed to you.
And on that note: Consider hand-me-downs and used baby gear. All babies grow up and out of their clothes, strollers, etc., some even faster than you’d expect. Except for diapers, there are plenty of used items you can get from friends who’ve already had kids, or buy online.
This is a great opportunity for grandparents, siblings and those in your inner circle to chip in. Surely you’ve “showered” other friends and family with gifts by this point in your life – why not have the favor returned? And if you’re having a baby shower, be strategic about your registry. Register for as many necessities as possible, ideally for some that will extend beyond the newborn phase (e.g., toddler clothes).
Parental leave varies greatly by employer and by state, but most expecting parents can depend on the Family and Medical Leave Act (FMLA). If you’re considered an eligible employee of a covered employer, the FMLA guarantees that you can take up to 12 weeks off for the arrival of your child. Note: this does not necessarily mean you get paid while you’re out. For more information, consult your employer or the FMLA’s website. Also of note: you have to give reasonable notice.
If you work for a company that offers paid parental leave, that’s a wonderful thing. Make sure you fully understand your employer’s policy, and if there’s a potential for you to stay out longer on unpaid leave.
Some workplaces may offer Dependent Care FSAs, which can help reduce the costs of certain expenses including childcare services, summer day camps, etc. These work similarly to other FSAs: You withhold a certain dollar amount from your paycheck and that amount goes toward funding the FSA. You can then use the money in your FSA to pay for qualified out-of-pocket expenses for your child, tax-free.
Check to see what your company offers and figure out ways to maximize your benefits. You might also want to see what other perks are available. Large employers may offer discounted or even free entry to museums, zoos and local attractions, which you’ll want to visit because both you and your kid(s) will want to get out of the house.
Think long and hard about your current housing situation, and figure out if you can make it work while also growing your family. For new families in expensive cities, continuing to rent may offer you more flexibility and might be the better financial option. If you’re looking to buy or are already a homeowner, you probably want to be in a house that you can be in for a long time. Whatever you decide, ask yourself if you feel good about the local schools and community – is this a place where you can see little [insert name] growing up?
Also for your home: If you’re going to “baby proof” your house (hide cords, put safety covers over electrical outlets, etc.), consider if you want to hire a professional, or do it yourself. Either option will come with costs.
If those sound like grown-up things, remember…you’re having a child. While it may be terrifying to think about you or your partner dying unexpectedly, it’s even more terrifying to think about that scenario without life insurance. Life insurance helps protect your family or those who financially depend on you in the event that you are no longer able to provide for them. Shop around and figure out what plan works best for you. Having a plan in place will give you peace of mind and can be well worth it in the long run.
And while college seems far away now, starting to save decades in advance could help soften the blow of an expensive college education down the road. One option is a 529 plan, which is basically an investment account that allows you to save for a beneficiary’s (such as your child) future higher education expenses including tuition, mandatory fees and room and board.
Here’s a quick rundown on how it works: Open a 529 account for your kid and start putting money in it. The total amount you can contribute varies by state, ranging from $235,000 to $529,000. The money you contribute grows tax-free, which means when your kid goes to college – be it a state school, community college, university or trade school – she can use that money for any education-related expenses and she won’t pay taxes on it.
There’s a lot more to 529s including potential tax benefits, who is eligible to contribute (ahem, grandparents!), the types of expenses covered, etc. Read up on the specifics for your state, and if you have one, consult your tax advisor and/or financial planner.
Assuming you already have an emergency fund in place, keep adding to it if you can. Having a baby changes everything, and you never know when you might need some extra cash. Perhaps you want to extend your parental leave, or maybe (surprise!) you’re having twins. Point being, it’s now more important than ever to have a solid amount of savings built up.
Also, just because you’ll be spending a lot on your child – and his or her future – doesn’t mean you should scale back on saving for retirement or borrow from your 401(k) to pay for your child’s expenses. In fact, the last thing you want to do is neglect your own financial health at the expense of your kids’ – otherwise, they might end up financially supporting you later on. If it’s feasible, continue putting money into your retirement plan and make sure that you’re contributing up to your employer’s match (if it’s offered).
Beyond your finances, make sure that you’re taking care of you – yes, you. It may sound cliché, but it’s going to be really important and will often times come with a cost…and that’s OKAY. Does paying extra for the convenience of a nanny make sense for you? Go for it. Will keeping your gym membership offer you an occasional, much-needed escape? Keep it. Parenthood is an entirely personal and unique experience for everyone, so just focus on what works for you and your family. Will you make mistakes along the way? Probably. But don’t beat yourself up over the little things – financial and otherwise – that inevitably won’t go as planned.
At the very least, hopefully you now feel financially prepared to welcome your child into the world. With that checked off, you can now go focus on more important things.
This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.