Transition Series Becoming Parents: Part 1

Originally posted on alignedws.com

From the moment a pregnancy is known it is an exciting time filled with love and possibility. A new life is being created and that is to be celebrated. Baby showers and nursery décor, along with the cute clothes are all top of mind. I remember with such joy in my heart that time with each of my two girls. I also remember all I wanted was root beer and anything with cheese with my first and Dairy Queen hot fudge Sundays with my second.

I could do a whole blog post on what gear you actually need in effort to keep costs down, but here I want to discuss the transition into parenthood from a financial perspective. There are a lot of decisions that need to be made and some stuff that needs to be discussed that won’t bring up the warm and fuzzy’s like the little baby clothes will.

In this part one of two on the transition into parenthood we will discuss the financial impact of children and create your baby financial checklist.

The Financial Costs of Raising a Child

From the moment you bring a baby into the world, expenses start piling up. The U.S. Department of Agriculture estimates that the cost of raising a child from birth to age 18 (not including college) is over $230,000. This figure can vary depending on where you live, your lifestyle, and personal choices, but here’s a breakdown of some major expenses:

• Prenatal and Birth Costs: Medical bills associated with pregnancy, delivery, and postpartum care can range from a few thousand dollars with insurance to tens of thousands for those without. The cost will depend on the type of delivery (vaginal or C-section) and any complications that arise. In addition, your insurance coverage matters as well. As you plan for a baby review your deductible and out of pocket max on your insurance coverage. Plan to have this saved up in preparation for the bills that will come. If you enter open enrollment for your benefits, consider switching plans that may offer a lower deductible for a higher monthly payment if overall the costs can be lowered. The average cost out of pocket cost (vaginal or C-section) is $3,000 to $6,000.
• Basic Necessities: Diapers, formula, baby food, and clothing are just the beginning. Many parents find that expenses for items like cribs, strollers, car seats, and other baby gear add up quickly. While a baby shower and generous friends and family can help, it won’t cover it all.
• Education: While public education is generally free in many countries, private schooling and extracurricular activities like music lessons or sports can add thousands to the budget.
• Healthcare: Routine pediatric visits, vaccinations, and potential emergency care are recurring costs. Health insurance premiums will also rise as you add your child to your plan. Typically, a well child visit is covered under most insurance at no additional cost. Kids however tend to get sick a lot, especially when in daycare or school settings.
• Childcare: Childcare is one of the biggest financial burdens for many families. The average cost of full-time daycare in the U.S. ranges from $9,000 to $15,000 annually, depending on location. Here in the state of Colorado the average cost for infant care is between $14,000 to $18,000.

?The Emotional and Physical Challenges

While financial costs are a huge part of raising a child, the emotional and physical challenges are equally demanding. Parenting requires constant attention, patience, and flexibility.

• Sleep Deprivation: One of the most common challenges for new parents is a lack of sleep. Babies, especially in the first few months, wake up frequently at night, leaving parents exhausted and sometimes struggling to balance work and personal life. There are some great gentle sleep training programs such as Taking Cara Babies that can help everyone get some much-needed rest.
• Balancing Work and Family: Many parents find it difficult to juggle a career while raising children. The pressures of work, coupled with the demands of parenting, can lead to stress and burnout. Flexible work arrangements and parental leave policies are becoming more important to modern families. Prioritization will become even more important. Make sure you are making time for self-care as well.
• Emotional Stress: Raising a child involves a rollercoaster of emotions. From the joy of watching them hit milestones to the stress of dealing with tantrums and adolescent rebellion, the emotional strain is constant. Parents also often experience anxiety about their child’s health, development, and future.
• New You: This does not get talked about enough, but when you give birth to a baby and become a parent so a new you is born. There can be some grief in that because there is a loss of the body you used to have, loss of independence and a shift in your relationship dynamic. Be kind to yourselves and as you learn about this new little person, learn the new you too.

Baby Financial Checklist

Here is your financial baby to do list. Some of this is before birth and some is after. All are important.

1. Decide on childcare (Part 2 is all about childcare and the costs, stay tuned)

This decision encompasses a lot and requires choices. The right childcare for a family is difficult to find. The discussions about what is right for you and your family should start soon after finding out you are pregnant. The reason being is that waiting lists can be years long for a day care center or you may decide to stay home and should adjust spending habits from two earners to one to see if it is viable for your family.

1. Estate Planning

See an attorney to create or update your wills and powers of attorney. Specifically, you are going to need to name a guardian in the event of your incapacitation and death for your child. You can create rules on the spending of any funds by creating a testamentary trust that will tell the guardian how the money is to be handled for the child and prevent the guardian for using it for personal reasons. This is why it is important to choose the right person. Know that you can have a physical guardian and a financial one as well.

1. Life Insurance

There is now a little life and person solely dependent on you and your partner for everything. If something were to happen to you or both of you would there be a financial disaster. Life insurance can help mitigate this. When choosing appropriate coverage know that your workplace coverage is typically not enough and not portable. In looking at the amount needed consider paying off any debts, your lifetime earnings and if you would want it to pay for education. A financial professional can assist you with your life insurance needs.

1. Savings

Consider opening a separate savings account as a sinking fund for needs to for the child, in your and partner’s name. You can save for future education expenses, a car, birthday parties, extracurricular activities, a possible wedding. Once the child is born and has a social security number you can consider saving specifically for education in a 529 plan. However, consider a taxable savings or investment account for all the reasons above and the flexibility because a 529 is only for qualified education expenses.

1. Budget

Redo the budget and factor in things like clothing, shoes, diapers, and formula. Babies grow rapidly in the first year and will quickly grow out of clothes. They also spit up and poop on everything so my advice is to not spend money on outfits they will wear once. Each of these expenses add up but are very necessary and did not exist in your spending before. Know what you can spend before you go to Target, but also consider thrift places that often have new with tags baby items! Also, be prepared for when they start eating real food. I am not sure what it is about kids and fruit, but they eat a lot of it, and it is not cheap!

1. Paperwork and Benefits

In the hospital you will fill out paperwork to get a birth certificate and social security card for your baby. The national average to receive a social security number and card is 2 weeks. Notify your benefits department upon the birth of your child and you will have the chance to essentially re-enroll for health insurance due to a change of life event. You have 30 days typically to do this. In your post baby haze, it is important not to forget it!

Try and have a meeting with HR prior to the birth of your child so you can understand what is offered and the costs associated once you add someone to the plan.

I also recommend looking at both partners benefits during open enrollment season to see who offers the best options for families in their overall benefits package and not just the cheapest health insurance. For example, do you have access to a dependent care FSA where you can contribute up to $5,000 to be used for childcare expenses. Which plan offers better short-term disability or long-term disability? Does an employer contribute to an HSA and that makes the high deductible plan a better option? The need to blend between both workplace coverages to maximize the benefits is always an option as well.

1. Plan for the future

Discuss big life events for your child and the financial cost around it to start creating those expectations early. Is education and not wanting your child to have debt essential? Create a plan and when appropriate communicate that to your child. Want to pay for their wedding eventually, start saving now. Will you be buying them a car or not on their 16th birthday? Do you expect them to work when they turn 15? What do you want them to know about money as they grow up or what do you hope to do different than how you grew up? Kids learn about money earlier than you think. I encourage you to think back to your first memory of money and how it shaped your current view of money.

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Be Excited and Be Prepared

You can be the best planner in the world (type A planner right here) and your birth will not go as you planned, your child has a will all their own and as they change and grow so will the circumstance. I never envisioned having two c-sections. I did not foresee having a daughter with hearing loss and a hearing aid om top ADHD that is hard on all of us. It is still a beautiful life, and I love it even more so with all the unplanned. You will learn to role with the punches and the glimmers as they come because there are just some things out of your control.

There are some things you can control and have in place that can help with the things that are out of your control. That is why I created the Baby Checklist for you!

Having a child is a beautiful, challenging, rewarding and awesome experience. Congratulations! I am here if you need assistance transitioning into this phase because it is a big shift.

Stay tuned for part 2 on all the different types and cost of childcare!

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The information contained should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

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