Your friends are planning a baby shower.
Mom's tummy is growing and she looks more radiant every day. The happy parents
are making plans for the baby's room. All this activity and yet there well
may be something that they've forgotten.
Can that very small person cause large changes in your finances? Let's take
a look and try to help our new parents get financially ready for the big
day.
The first item on the agenda is to recognize the fact that the methods you
used before may not be sufficient now. When you first got married you might
have said, "you pay the rent and I'll use my paycheck for the groceries".
But that won't get the job done any more.
The cost of diapers, clothing and formula can cost $5,000 per year. And that
doesn't even include day care. You'll need to do some research. Prices vary
from city to city. You'll make choices like disposable diapers vs. cloth.
That will affect how much money you spend. Talk to your friends and find
out what their bills look like.
If both parents have been working, the biggest question is whether one of
them will stay at home with the baby. The alternative is using a daycare
arrangement. Choosing whether to have a stay-at-home parent is not an easy
decision. Many parents are surprised at how little money is actually earned
by the second breadwinner when expenses are deducted. For instance, someone
earning $20,000 per year ($9.61 per hour) could find their take home pay
reduced by as much as 75% when taxes and the additional expenses of working
are factored in.
The 'stay-at-home' decision is one that needs to be discussed thoroughly.
It involves much more than just money. Some parents are very happy staying
home with children. Others are not. Career plans, the pace of family life,
baby's health and more can all be affected by the choice you make.
Once you've made that decision it's time to look at a proposed budget. If
a family is used to spending all of the current income, some adjustments
will be required. You can't take a budget that's tight now and shoehorn in
the extra expenses of a baby.
Begin with your current budget and talk about how the baby will affect your
life and your finances. You can expect to find changes on both the income
and the expense side. Even if both parents will continue to work, wages may
be affected. A sick baby may need either Mom or Dad to stay home from work.
For many employees that means that they won't get paid. Some parents will
choose to take advantage of the "family leave". That can mean up to three
months of lost income.
If both parents will work the next big decision is what type of day care
to seek. You'll need to call around to find costs in your area. They'll vary
widely. According to the Children's Defense Fund, full-time daycare can cost
between $4,000 and $10,000 per year. A Runzheimer survey compared full-time
costs by city. The lowest cost was Tampa, FL at $260 per month. Manhattan
was the highest at $1,125 per month.
You'll also want to consider whether that bundle of joy will consume any
of the savings that you've been accumulating. If our parents don't have
insurance, the cost of a relatively normal delivery including two days in
the hospital and doctor's bills will run about $6,000. A Cesarean birth can
cost $10,000.
It's also a good time to think about what happens if Mom or Dad should die
prematurely. Our new parents should take a look at their insurance requirements.
Younger parents don't expect to get sick or die. And, while it may be permissible
for someone without children to have minimal insurance, it's not OK for our
new parents. Should one parent die, the survivor will not only face the loss
of income, but will find that it's more expensive to raise a child in a one
parent home.
And the cost of insurance isn't that great. For instance, if our young mother
is in her 20's and doesn't smoke, she should be able to buy $1 million in
term life insurance for less than $50 per month. There's more than financial
issues to consider. It's essential that you have a valid will. You may know
that you want your sister to take care of the kids if something should happen
to you and your spouse. But, without a clear statement
to that effect in a valid will, the state will follow their own rules. Their
choice may be dramatically different than yours.
And don't forget to look at disability insurance. Losing income for a number
of months can put a financial hurt on any family. But, for a family with
small children, it can be especially hard. And roughly one in seven full-time
workers will endure a disability lasting five or more years before reaching
age 65.
Bringing a new life into the world is a wonderful time. It's a time of great
joy, but also a great responsibility. You love that baby. Please don't forget
that part of demonstrating that love is caring for their needs.
About the Author: Gary
Foreman is a former Purchasing Manager and Certified Financial Planner.
He currently edits The Dollar Stretcher
website. It contains the web's largest collect of free articles to save you
time and money. There's even a free weekly email newsletter. Visit and save
some money today!
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