Having a baby is expensive.
There are plenty of estimates of the additional expenses babies bring to families per year. In one study, families would spend an additional $12,000 in baby’s first year. Another put that figure closer to $15,000. These numbers don’t include any medical costs you may be responsible to cover. And, I really wonder if childcare costs were considered, either.
No matter which figures you prefer, it’s a lot of money.
Let’s go with the lowest figure for now. For some, this may be seem doable by modifying budgets, cutting back on luxurious coffees and other lifestyle choices.
Expenses, however, are only one side of the equation. Income also needs to be considered.
For too many mothers, income takes a hit after having a baby. There’s the loss of income that comes with taking leave. This is true in the US where family leave is unpaid for the vast majority of employees. It’s also true for mothers in countries where leave is paid – in many instances it only covers a portion of salary. There are long-term costs to taking career breaks, too. And, for mothers who return to work after leave, the hits keep coming as the gender wage and promotion gap increasingly widens.
With all this money on the table, you’ll need to adjust your financial plans to prepare for baby’s arrival. Here are 5 adjustments to start thinking about:
Set a baby budget
When it comes to stuff for baby, it seems all of it is essential. Or so we’re told by retailers and even well-intentioned friends. But, before you fill up your shopping cart, take time to set a realistic budget for your growing household.
Create a budget that will account for your income and expenses once baby’s on the scene. Consider your current expenses, making adjustments where necessary. You’ll also identify new one-time costs (e.g., crib, car seat) as well as longer term recurring expenses (diapers, formula, childcare). For each, think carefully about what is realistic for your growing family.
Get started with this budget worksheet.
Financially plan for career breaks
A key part of your budget is your income. So, be sure to consider how much time you can afford to take for leave. You’ll also want to consider whether you’ll want to take an extended break from work. For either scenario, check with your company’s policies and government’s legislature to understand your rights as it comes to job protection and income.
What are the long-term costs of a career break. Yes, this includes the salary that you’ll be giving up for the duration of your time out of the labor pool. But, it also must account for the cut to your salary you’ll receive once you return to the workforce, as well as the impact this will have on future earnings. According to a 2015 survey, one in five women reported a 20% pay cut after a career break. And, since raises will be based on this new starting salary, women could lose upwards of a $1 million or more over a career.
Spending time raising your little ones may be worth every dime, it just may require some financial planning to make it happen.
Become a savvy saver
It’s not enough to have sufficient funds in the bank to cover your monthly and yearly expenses. You’ll also want to be sure you’re saving for your family’s future. The costs for raising a child continue to grow just as your child does. By the time a child is 18, average two-parent middle class families will have spent about $245,000. That’s not a small sum. It also doesn’t include college or university.
Work with a financial planner you trust to determine how much money should be earmarked for savings and which financial products will help you reach your saving goals.
Create a contingency plan
Life happens. And, many times, when it does there is a price tag that we aren’t quite prepared to pay. That’s why you’ll want a contingency plan in place for all of life’s “what ifs”. Part of this plan requires you to be able to access emergency funds. In addition to your long-term saving plans, you’ll also want to put some money aside into a separate contingency fund.
You’ll also want to consider insurance plans. This includes life insurance as well as other plans that will beef up health and wellness benefits for each member of your family. Lastly, take time to write out a simple will. Should the worst happen, you’ll want to be certain your children and your assets are protected under the eyes of the law. Talk about it with your partner and work with a lawyer to draft a simple, but clear will that outlines your wishes.
Reconsider your lifestyle
Having a baby will change your life – and your lifestyle. Once baby’s on the scene, it’s likely you’ll be spending less time enjoying happy hour at the local pub or dining out at the hippest restaurants. If you’re looking to save up before baby’s arrival, consider cutting back on these extracurricular activities now. You’ll also want to consider other ways to cut back on spending: invest in a reusable coffee mug and a good coffee machine so you can skip buying expensive coffee drinks, trim back on your clothes shopping, brown bag your lunch to work, or try shopping in bulk. As you consider where you to cut back, don’t go too far. You’ll want to be sure there’s a little room in your budget to treat yo’self and your partner – so you can both continue to enjoy life.
Planning budgets and preparing finances isn’t always much fun. But, when you have a clear idea of your money matters, you’ll be able to create a less stressful and more enjoyable life for your family. Let me know if these money strategies are helpful to you. And, definitely share any other tips you may have with the moms in our community.