Financing a New Baby: The Cost of Parenthood

Whether you are a parent or a grandparent, your new little bundle of joy will be “dear” in more ways than one. Here’s how to plan for the financial to-dos and priorities of new (grand) parenthood.

Births, deaths, marriages, and divorces are significant life events that require financial resources and planning. Of all of these, a new baby is one of the most joyful, as parents and grandparents share their hopes and dreams as the birth comes closer.

When planning for the financial aspects of parenthood, it’s wise to be as proactive as possible. There are many expenses to consider, so take some time to consider the long-term implications of parenthood and put together a budget that will allow saving for future expenses.

Here’s an overview of some spending priorities and financial tasks to tackle before the baby arrives:

Health insurance

Determine, roughly, how much having this baby will cost? Review your health insurance policy and find out about deductibles, co-pays, and policy limits.

The final bill for labor and delivery can include several costs. These may include deductibles for both the mother and baby. There may also be out-of-pocket hospital fees. Additionally, there could be co-pays for doctor visits and tests, such as ultrasounds and amniocentesis.

Life and disability insurance

With a baby in the picture, the health and ability to work of each parent is even more critical to family finances. Think about how each person helps at home and what would occur if a parent couldn't work due to an accident or illness.

Check your employers’ policies to see what coverage is available there. Discuss with your financial advisor about your benefits. Determine if you require additional disability coverage. This is in addition to what your employer already provides.

In terms of life insurance, it is suggested that each wage earner should have life insurance equal to six or seven times their annual income. A parent who stays at home should have insurance to cover childcare, cleaning, and other services. This allows the other parent to keep working.

Emergency fund

A good rule for an emergency fund is to save enough money to cover three to six months of living expenses. This will help you prepare for job loss or financial problems. If you don’t have an emergency fund, start accumulating right away.

First-year expenses

A USDA report shows that middle-income family spends more than $13,000 in the first year. This includes regular costs like baby food and diapers. It also covers one-time costs for setting up a nursery. That excludes childcare expenses, which vary widely depending on the type of childcare and location.

Cost to raise a child to age 18

That same USDA report reveals what it costs a middle-income family to raise a child through the age of 17. In 2023, it projected a cost of $331,933 when inflation costs are factored in. That’s the amount that a middle-income family—with an income between $61,000 to $183,000—would spend.

Work or stay home?

A big issue for many expectant parents is whether both parents should work or one should stay home with the baby. Clearly, this goes beyond financial considerations. It’s a big decision with important implications for the young family’s future.

Your financial advisor can crunch the numbers to see how much it would cost for the second parent to work. But you might be surprised that once you factor in child care, transportation, taxes and—for exhausted working parents—a cleaning lady and meals out, how little income is left. One parent at home might just pay off.

On the other hand, making that choice could compromise the future career prospects of the at-home parent, making it more difficult to secure employment commensurate with skills and education at a later date, so consider all the trade-offs.

College

According to U.S. News, the average cost to attend a four-year private college during 2023 was $58,628 (tuition, fees, room, and board). Even if your child chooses an in-state public school, the average cost was around $27,146 (tuition, fees, room, and board).

Of course, your new baby won’t be entering college for another 18 years and few can forecast what college will cost so far out. There are a number of ways to save for college, and your financial advisor can help you explore the options and set a budget that can help the family—including grandparents—prepare for the expense.

Estate planning

At a minimum, consult an estate-planning attorney to create a will to name a guardian for the child. If extenuating circumstances exist—if the parents aren’t married or there are children from a previous marriage—more elaborate estate planning measures might be necessary.

Retirement Planning

Don’t sacrifice your own financial security for the baby. Keep those retirement plan contributions rolling in, even it if means cutting back on college savings. Financial aid is available to college students—not retirees.

Bottom Line

Having a new baby is a happy time, but it also comes with many financial responsibilities for the family. By taking proactive steps—whether it's reviewing health insurance, planning for childcare, or starting a college fund—you can make sure that your family is well-prepared for the future.

Sources:

https://hmlink.co/reader.aspx?a=ar-financing-a-new-baby-the-cost-of-parenthood

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information