The arrival of a new baby can be exciting - and financially overwhelming. A tiny new baby can mean big changes - and major expenses - for new parents. How much money can you expect to spend on your little one in the first year? What financial tools should you consider creating? Here we'll show you how to financially prepare for your family's newest addition before he or she arrives.
You may have begun pricing strollers and cribs, but what other one-time expenses can you expect?
- Medical Bills
You should plan for out-of-pocket pregnancy, childbirth and first-year baby-care expenses. According to a 2007 March of Dimes report, the average cost for routine maternity care (prenatal care, labor, delivery and post-partum care) was $7,737, $7,205 of which was paid by health insurance; cesarean delivery was an average of $10,958, $10,324 of which was paid by insurance. Review your policy to find out how much you have to pay out of pocket for prenatal care, hospital stay, tests and post-partum care. (For advice on cutting your medical costs, read 20 Ways To Save On Medical Bills.)
Total: $463 - $523 with insurance; $7,737 - $10,958 without insurance
- Going Mobile
To get out and about you will most likely want to purchase a stroller, an infant car seat (required by law), a diaper bag, portable play pen and baby carrier.
Total: $400 or more
- Keeping Baby Happy
To keep your little prince or princess occupied you may want to consider a portable swing, "bouncy seat," play mat and/or jump seat.
Total: $200 or more
- Furnishing the Room
To begin, you will want to have a crib and/or bassinet, crib mattress, basic bedding and blankets, changing table, small dresser, rocking chair, monitor and diaper pail.
Total: $1,100 or more
- Nursing and Feeding
You'll spend a good amount of time and money feeding baby in the first year. Main items to purchase are bottles and equipment (nipples, brush), bibs, a highchair, utensils and burp cloths.
Total: $200 or more (Note: If you're planning to breastfeed, add $200 for nursing items, such as a breast pump, nursing pillow and milk storage.)
Be sure to factor in any potential loss of income if you and/or your spouse take unpaid leave. Under the Family Medical Leave Act, your employer may grant you up 12 work weeks of unpaid leave for your baby's arrival – check to see what type of leave you may qualify for. If you take unpaid leave, calculate your regular expenses during that period (i.e. mortgage, utilities, insurance, groceries, etc.) and determine how you will meet those costs. (Read Consider The Outcomes When Cutting An Income for more planning tips.)
Once your baby has arrived, the regular expenses to care for your little one kick in. Factor the following costs into your budget:
- Child Care
If both you and your spouse will work after baby's arrival, your single biggest budget item will be child care. According to the National Association of Child Care Resource and Referral Agencies (NACCRRA), the average price for full-time daycare was as high as $14,591 in some parts of the U.S.; the rate for in-home care can average anywhere between $250 and $850 per week.
The amount you can expect to pay depends on the following factors:
- Where you live
- The age of your child
- How many hours per week you need care
- What type of care you choose
You'll want to factor in additional money for emergency care (when your sitter cancels or your child is sick), food, clothing and supplies for your child to have when away from home, and holiday gifts for caregivers. (If you are eligible, some costs might be offset by various tax credits, such as the child and dependent care credit.
Total: high average of $14,591 for daycare; up to $44,200 for in-home care ($850 × 52 weeks)
- Infant Clothes
The average cost for baby clothes is about $60/month for the first year.
The average child will use more than 2,700 diapers in the first year alone, which can add up to more than $550 (based on an average price of $0.20 per disposable diaper). A diaper service will cost you approximately $76 per month, and doing the dirty work yourself at home with cloth diapers will cost you approximately $19/month. And don't forget an average of $20/month for wipes!
Total: between $468 (for cloth diapers plus wipes) and $1,152 (for diaper service plus wipes)
- Formula and Food
If you're using formula, plan on spending approximately $105 per month and an additional $60/month when your little one begins eating baby food.
Total: $1,260 or more
- Doctor's Office Co-Pays
According to the Agency for Healthcare Research and Quality (AHRQ), the average co-pay for a physician's office visit is $20. Plan on 3-4 "well visits" for evaluations, immunizations, etc. and a few additional visits for illnesses. Check your health insurance policy for your rates. (For further reading, check out Buying Private Health Insurance.)
Total: at least $60
If One Parent Stays At Home
If one of you becomes a stay-at-home mom or dad, there are important budget changes to consider; the most obvious is reduced family income. How much total income do you stand to lose – both salary and benefits? Identify areas where the change could result in potential budget savings, such as:
- Dining out or buying fast food
- Dry cleaning
- Car insurance premium (if you're no longer classified as a commuter)
Compare that number with budget categories that could increase with family members at home all day, such as higher utility and grocery bills. (If you need help creating a budget, read Get Your Budget In Fighting Shape. To read more about the value of a stay-at-home parent, see Insuring Against The Loss Of A Homemaker.)
Financial Tools to Consider
With your child's arrival, you'll want to create financial tools to help provide for your child's future. Review the following checklist to determine your priorities and begin budgeting:
- College Savings Tools
According to the 2007–08 College Board Report, the average cost per year for college ranges between $6,185 (public) and $25,000 (private). Start saving now through one of several college education investment tools, such as a 529 plan, Coverdell Education Savings Account or UGMA/UTMA account. (Read Investing In Your Child's Education to learn more about investment options, and use our Saving For A Child's Education calculator to determine how much you should save on a monthly basis.)
- Life Insurance
If you do not have life insurance, now is the time to buy it. For just a few dollars a month you can be assured that your child will have financial resources if you and/or your spouse were to die unexpectedly. (Read Life Insurance Distribution And Benefits to learn more about the coverage you need.)
- Health Insurance
Without health insurance, just one serious accident or illness could deplete your savings and put you in significant debt. Investigate your insurance options if you don't already have coverage, or budget for the increased monthly premium to add your child to your policy. (Read How To Choose A Healthcare Plan to get started.)
- Disability Insurance
Now that you're a parent you and/or your spouse should consider purchasing disability insurance to replace income lost if you become unable to work. Talk with your human resources department or insurance agent about affordable options. (You can also learn more in Protecting Your Income Source.)
- Flexible Spending Accounts (FSAs)
FSAs enable you to use pretax dollars to pay for important family budget items, like child care and healthcare expenses. Talk with your employer or financial advisor about setting up a dependent-care FSA and/or healthcare FSA. (Read Healthcare FSAs Increase Your Personal Savings for more information.)
It's important to start the estate-planning process by creating a will to ensure financial support (and legal guardianship if your child is under 18) when you die. It can cost as little as $300 to have a lawyer draw up a simple will; the more complicated the will, the more expensive it will be. (Learn more through Getting Started On Your Estate Plan or our Estate Planning tutorial.)
Ways To Save Money
Fortunately there are numerous ways to meet your new baby's needs without breaking the bank:
- Consignment/Thrift Stores
Babies grow quickly. Instead of paying full price for their clothing, check out gently used and even new items at your local consignment or thrift store. Many stores will also buy back items after your child has outgrown them for cash or store credit. Be cautious about buying used items related to your child's safety, such as a crib or car seat.
- Family/Friends for Back-Up Daycare
Instead of having to take a day off (possibly without pay) when your child is sick, make arrangements for family or friends to help out with emergency back-up daycare.
- Borrow Items From Friends
Ask friends with young children if you could borrow items, particularly big-ticket items they're not using, like a crib, high chair or rocking chair.
- Baby Shower Gifts
Register so that party-goers can buy what you really need and avoid ending up with multiple baby rattles and photo albums.
- Downgrading Lifestyle
Having a child is going to change a lot of things, including your financial priorities. After reviewing your new budget, you may not be able to make the numbers add up. Consider closing the gap by downgrading in a few key areas. For example, think about trading in a large car for a more affordable model, shopping at less expensive stores or buying more generic items. (To learn more, read Six Months To A Better Budget and Downshift To Simplify Your Life.)
Your baby's first year of life is an exciting time. So make a budget, investigate your options to keep costs within reach and spend more time enjoying your little one than worrying about how to pay the bills!
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