Here are a few things your new arrival is guaranteed to do: Cry a lot when you want to sleep; make you feel more love than you thought possible; and cost you hundreds of thousands of dollars.
That’s no exaggeration. The federal government puts the cost of raising a child at $233,000, counting all expenses through age 18. That comes out to about $13,000 a year, which is a big hill to climb. And it can seem even higher because most parents vastly underestimate the financial commitment. A consumer website survey found that 54% of all couples thought baby expenses would be less than $5,000 in their child’s first year.
How can you start a family and not go broke? The secret is preparing financially for a baby. You’ll no doubt get child-rearing advice from everyone you know. Let the staff here at First American Bank add our two cents’ worth—because a little financial advice might save you a lot of dollars.
Start Cutting Back: No matter how much you currently earn, you’re going to have less to spend on yourself when the baby arrives. Well before the due date, get frugal with luxuries like restaurant meals and vacations. If one parent is going to take time off after the birth, it’s good to “practice” living on one income.
Reduce Debt: Devote some of this savings to attacking your debt. All that money spent on interest charges is soon going to be needed for diapers and doctor visits. One idea is to transfer your credit card balance to a card with a lower rate. First American Bank offers a choice of credit card options.
Open an Account: Even before your child is born, establish a special savings account and fill it with money to be used only for baby expenses. That way, you’ll have something to fall back on when you encounter unexpected costs.
Check Your Insurance: You’d be surprised at how many insurance plans don’t cover some basic medical costs. Contact your insurer and ask about topics like pre-natal tests, hospital stay deductibles, and breast-feeding support services. In some cases, it’s possible to change coverage part way through a pregnancy. If you have a high-deductible health plan, another option is to open a health savings account that offers tax benefits and provides a cushion for unexpected costs.
Pick a Pediatrician: Obviously, you should choose a doctor you are comfortable with. But also make sure their practice is part of your insurance network, so you don’t end up with extra high co-pays for baby check-ups.
The cost of having a baby continues to increase when your child gets home from the hospital. No doubt, family and friends will join you in celebration. Chances are, they’ll bring gifts. One way to cut your costs is to ask them to pitch in for essentials instead of indulging the newborn with designer outfits and expensive stuffed animals. Here are some other ways to save:
- Resist buying every new product breathlessly advertised on parenting websites. Babies have survived for eons without a gadget to warm up their wipes.
- Gratefully accept gently used hand-me-down items. However, make sure older cribs, playpens and car seats meet current safety standards.
- Look for sales and discounts online. Dozens of websites offer deals on baby gear.
- Talk to other parents about providing babysitting services for one another instead of hiring expensive sitters.
- Shop at warehouse stores to buy items like diapers, baby food and formula in bulk.
As your child starts growing, you’ll want to take additional financial steps:Life Insurance: If you don’t have a policy, you should get one. If you do have a policy, consider increasing the dollar total. After all, if something happens to you, you’ll want to ensure there are financial resources available to raise your child.
New Accounts: Get your child a Social Security number and set up a savings account in his or her name. It’s the perfect place for birthday and holiday gifts from family members. At First American Bank, we offer special accounts for children.
College Saving: Private college costs are already topping $50,000 a year. It’s never too early to open a Coverdell Education Savings Account or to set up a 529 Plan.
Yes, it’s a lot to think about. But planning for a baby financially is important. With financial matters under control, you’ll feel less stress and be able to enjoy your family time even more.