True story: I'm a first-time pregnant lady and have no idea what I'm doing — especially when it comes to financially preparing for this change.
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I've seen the numbers — $233,610 for food, shelter, and other necessities to raise a child through age 17 — but it's hard to translate that big, scary number into daily life. Part of me is terrified, and part of me is simply avoiding the money debacle (aren't I smart?!).
In an effort to face reality, I chatted with Chantel Bonneau at Northwestern Mutual, who is not only a finance expert but also a mom herself.
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Here's her advice to new and seasoned parents alike who are trying to do right by their kids. Of course, financial advice isn't one-size-fits-all. Definitely take your circumstances and needs into account before making any money moves.
1.Bonneau says that before your baby comes (or, better yet, before you start trying), you need to get real about what your life will look like post-baby.
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One of the financial pitfalls Bonneau says many parents face is not being realistic about the added cost of adding a new family member and not foreseeing changes to their cash flow.
"Will you have childcare costs? Diapers, formula, and more diapers? A reduction in household income if a parent plans to step back from working? The best thing you can do is plan ahead so that you can be proactive before the baby arrives," she says.
2.Turns out I need to take time NOW to clean up my finances.
3.Bonneau notes that if finances aren't your cup of tea, you can seek out a financial adviser to help you budget and plan for your new addition.
4.I learned that now is also the time to talk about estate planning and beneficiaries.
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I know, I know, estate planning sounds like something you do when you're 70, but everyone should have a plan for what will happen to their assets (home, car, savings, etc.) when they die. This is also when you'll want to name beneficiaries for these things. Both elements are extra important now that you're a parent (or about to be one).
"It is important to update beneficiaries and have important estate planning conversations. A will or trust and naming a guardian can offer protection for your family in the event of an emergency, and this is one of the items you can check off of your list before baby arrives," Bonneau says. Not sure where to start? Look up the guidelines for writing a will in your state or seek the help of a pro.
5.If you don't already have it (I don't!), Bonneau says, you should consider buying life and disability insurance.
6.I learned that in addition to looking into the distant future, I need to keep the near future in mind. Most notably, coming up with a plan to pay for the birth.
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Data from a recent Health Care Cost Institute report found that the average cost of childbirth for a person with employer-sponsored insurance in the US was $13,811, but the out-of-pocket spending ranged from about $1,000 in Washington, DC, to approximately $2,500 in South Carolina.
Of course, where you live and how you give birth can shift these numbers wildly. Cesareans are notoriously expensive, and hospitals are usually more expensive than birth centers or home births.
To avoid any surprises, Bonneau suggests "reviewing your medical plan details" in advance, noting that "many offer estimates for childbirth specifically."
7.Bonneau says you should also have an idea of how much you can afford to spend on baby stuff, then stay within that budget.
8.And she says to ask your company about parental leave.
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Some companies have great parental benefits (including paid leave for moms and dads), but as a base requirement, the Family and Medical Leave Act (FMLA) promises just 12 weeks of unpaid, job-protected leave per year in the US.
Note, FMLA is unpaid. So really, unless your company is amazing, you'll need to factor into your early baby budget any decrease in work or time off that you plan to take.
"Do your due diligence up front so that you are not surprised. If your income will be short during parental leave, try to plan ahead to save in advance or prepare for what you can cut back on during that period of time," Bonneau says.
9.Keep in mind that one of the biggest costs of having kids is childcare (or quitting your job to provide care).
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You might live down the street from your retired parents or in-laws (lucky you!), but for most people, childcare can be a real, hefty cost that has to be factored into the new monthly budget.
Bonneau estimates that childcare can be as much as $5,000 a month if you want a full-time, dedicated nanny, but she notes there are plenty of less expensive options too.
"Many families will find nanny shares where two or more families work together to pay a nanny to watch several children. Some local schools offer affordable daycare programs; or in-home, accredited daycares can be more cost effective. Explore a DCFSA (dependent care flexible spending account) if your employer offers it to allow a deduction for the funds you can contribute for some childcare costs," she says.
10.If money is tight, don't stress it. There are always ways you can cut back in other areas to make room for this new cost.
11.Based on the anticipated monthly cost of the new addition, I'll need to reconfigure my emergency fund.
12.And Bonneau reminds new parents that once your babe arrives, you'll need to add them to your health insurance plan.
13.Plus, she says you might also consider buying your new baby life insurance.
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As you might remember, life insurance benefits the family in case of a death. While no one wants to think about death after experiencing new life, it is a reality.
Bonneau explains, "One of the benefits of child life insurance policies is that they typically include or offer a guaranteed purchase option, which allows the right to buy a certain amount of insurance at a locked-in health classification in the future."
14.And finally, I learned that if there's any money left over, I should consider putting cash aside for my kid's college fund.
Any seasoned parents out there up for sharing their financial tips? Some of us (ahem, me) could use all the help we can get.
And for more money tips and tricks, check out the rest of our personal finance posts.