Finding out you're expecting for the first time is one of the most exciting - and daunting - moments of your life. You immediately become a parent, along with all the worry that entails. You're already starting to eat organic and renovate what will soon be the nursery. Even if you haven't yet gone into full nesting mode, you're making plans from the minute you see that positive test strip.
Don't forget that financial planning, while not as immediately satisfying as buying tiny socks, is an important step to make sure your family begins on the right foot. Keep in mind that the average cost of raising a child to age 17 is $233,610. Don't let that number spook you - you don't need to have it all up front. Here are some ideas for managing the finances of the first years.
Plan Your "Starter Kit"
Babies don't need everything at first - high chairs won't come into play for months! You can get a good idea of what you'll need at the beginning, as well as your initial expenses, by asking friends with young children for a list of what to buy. Make this into a spreadsheet and look up the likely expenses for the items you want. This will give you a head start on your registry, and because you likely won't get everything you ask for, it will give you a good sense of how much you'll need to budget.
Time to get by with a little help from your friends. Take your spreadsheet of initial expenses and see what you can borrow or get second hand from your community. Lots of baby goods are only really useful for a few months at a time. Clothes, bouncy seats, carriers and plenty of other stuff works well second hand and you can subtract that cost from your expenses.
Set Immediate Savings Goals
Once you figure out what you'll need to pay for all your early gear - bottles, swaddles, a crib, etc. You have nine months to get to your magic number, so you can use automatic deposit to put a little away each month. You can even open a special savings account for baby.
Plan for Increased Expenses
Your monthly budget will look pretty different once the little one is here. Try to predict, even a ballpark prediction, your new expenses from clothes to toys to daycare to diapers. (Here's a start: the average cost for a year of diapers is $550.) Look at your current budget and plan how your own spending might change.
Plan for Reduced Income
If one of your plans is to take an extended or semi-permanent leave to care for the little one, a retooling of your budget comes into play. Only 60 percent of families have both parents working. Daycare in many states is more expensive than college tuition, so it might make sense - financially or otherwise - for your family to go with one income for a bit. This might mean temporarily reallocating funds, saving less aggressively, or just being more strategic about your spending.
Investigate Health Care Costs
The average cost of a hospital birth is $3,500; if special care is needed, the cost could be considerably more. Check to see what your health care policy covers, your deductible and what resources you have available. You might look into a Flexible Spending Account or a Health Savings Account. Both of these are funds you can put pre-tax income into to pay for healthcare related expenses.
Update Your Insurance
If you don't already have life insurance, now's a good time to buy it. It also might be a good idea to more aggressively protect your family's assets by upping your auto insurance to account for higher liability limits.
Save for a Rainy Day
If you haven't already started a rainy day fund, it's time. It can be hard to predict big expenses with kids - like grand adventures that end in a cast. And it's always better to be prepared for these little bumps in the road.
Establish a College Fund
It's a long way away, but research indicates that by 2030, the average cost of four years of tuition will be over $200,000. While that can be an intimidating number, you have nearly two decades to make it happen. Talk with a financial planner about programs that help you put away this sizeable sum. While financial planning might not be the most fun part of preparing for baby, once it's all settled it will be a huge relief and a big comfort to have everything squared away. Then you can concentrate on the fun stuff, like onesies and adorable towels with hoods and ears. And if you ever need a hand with the financial planning side, let us know how we can help.