Updated July 14, 2020
Preparing for a child is a complex, finanically daunting decision. It costs an estimated $233,610 to raise a child to age 17, according to the U.S. Department of Agriculture.
Before you start a family, it’s important to get your finances in order, which includes getting on the same page as your partner. Here are eight questions to ask yourself (and your partner) before you decide to start planning for a baby.
1. Can we afford child care?
Families often pay a large percentage of their annual earnings just to cover the cost of child care. Depending on the state, the average cost can reach nearly 18% of the state median income for a married couple, according to a 2019 report from Child Care Aware of America, a nonprofit advocacy group.
It can also often take weeks to find the right child care. If you’re considering day care, do your research and sign up for waitlists as soon as possible, even before your baby is born. Church-based day care and in-home day care provide a more affordable alternative to regular day care. If you’re using a nanny, consider a nanny share or host an au pair to save on costs.
2. What about other expenses?
Consider claiming your child and dependent care tax credit, which allows you to deduct child care expenses for children under age 13. The credit is worth a percentage of your child care expenses with a limit of up to $3,000 for one child, and $6,000 for multiple children.
New parents can also save on childcare costs by contributing to a dependent care flexible spending account, which reduces your out-of-pocket expenses. Dependent care FSAs allow parents to pay for child care with tax-free funds. There are some eligibility rules to keep in mind — here’s how to set one up.
3. Can our relationship survive parenthood?
Talking about money is something many couples don’t do. A recent Policygenius survey found that one in five couples keep their money completely separate. An even greater percentage (24%) don’t share any major financial accounts with their partner, and 30% don’t know each other’s salaries.
A lack of parity in a couple’s finances can lead to dishonesty about spending habits, income or savings. Introducing a child to the equation can make your financial situation even more difficult.
4. Can we take time off work?
Read over your benefits package to learn how much time your job allows you to take to care for a new child.
According to federal data, fewer than one in five parents has access to paid family leave. If you need to take unpaid leave, factor that into your financial plan. We have a breakdown on parental leave laws by state.
Women who plan to get pregnant can get short-term disability insurance. Disability insurance provides replacement income if you become unable to work. A typical short-term disability policy only lasts a few months, and is beneficial if your employer doesn’t offer paid leave. You may also want to consider long-term disability insurance, which protects you for a longer amount of time — learn more here.
5. Does health insurance cover us?
Delivering a baby is expensive, even if you have insurance. Out-of-pocket costs vary widely across the country. Having an emergency fund comes in handy, but a good first step to getting quality care at an affordable price is to do your research. Confirm your obstetrician and the hospital where you plan to deliver are included in your in-network benefits. If you have a high-deductible plan, contribute the maximum amount to a tax-deductible health savings account. Any money left over will roll over into the new year.
6. Is my family protected?
Consider purchasing life insurance, if you haven’t already. Life insurance financially protects your family if tragedy occurs, helping to replace your income and covering expenses like a mortgage and childcare. Workplace life insurance coverage is often not enough, so it’s important that you and your partner get life insurance to completely cover your assets. If you already have a policy, ensure you have enough coverage for your expanding family.
According to the Policygenius Parents & Money survey, parents without private life insurance felt less financially prepared than parents with private life insurance. The same goes for parents with an estate plan.
So while you’re at it, make sure your estate is in order. Estate planning financially protects your new child if you should die — you can designate a guardian for them and pass down assets using a trust. Lastly, make a will.
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