American women are increasingly delaying or forgoing having children, as the number of births from 2019 to 2020 fell 4% according to the Centers for Disease Control and Prevention — representing another record low.
For those who do hope to start a family, the costs and financial responsibilities of parenthood can be daunting. New parents will see their budgets hit by increased medical bills, child care costs, increased insurance needs and more.
To confidently enter this new phase of life, financial planners suggest checking off these financial milestones before bringing a baby into the home.
Budget for New Expenses
Couples can prepare for the additional costs of a child by adding cost estimates to their current budget to get a sense of what’s to come.
A child costs $12,350 to $13,900 annually for a two-child family with married parents earning between $59,200 and $107,400, according to a 2017 report by the USDA. Costs vary depending on a family’s income and the age of the child.
To prepare for these new expenses, Lamar Watson, founder and financial planner at Dream Financial Planning in the Washington, D.C., area, says creating a budget for a new family may involve some sacrifices.
“You have to start with a budget and you have to be honest with your budget. Be honest about what you’re willing to sacrifice. You want a kid in the D.C. area (or) even nationally, that’s going to be a mortgage payment or more in some places,” Watson says. “You’re not going to be going out to the bars and restaurants as much. If you think about it as a lifestyle change, there are things in the budget that will correct themselves.”
At minimum, experts also say couples starting a family should create a plan to pay down debt and save up at least three to six months of expenses in an emergency fund.
Prepare for Child Care Costs
Child care will likely be a family’s biggest expense during the first three to four years of their child’s life.
“It is unfortunate how much families have to consider this in their family planning. It should be a situation where there is care that is affordable and high quality nearby if you need it in this country,” says Mario Cardona, chief of policy and practice at Child Care Aware of America. However, he says “the price of child care remains incredibly high. It outpaces the costs of just about any household expense in the country, except for housing in the West.”
The average annual price of child care was around $9,100 to $9,600 nationally in 2019, according to a report by Child Care Aware of America. However, costs vary dramatically by region.
In California, for example, the average annual price of center-based infant child care was $16,452, representing 17.5% of the median household income in the state. In Arkansas, the annual price of center-based infant child care was $6,443, representing 8.9% of the median household income in the state.
Review Employer Policies
The U.S. is one of just a few members of the United Nations that lacks legally required paid parental leave.
Still, many U.S. employers offer paid leave for primary caregivers and some are moving to offer paid leave for secondary caregivers that families can take advantage of in the early weeks and months of their child’s life.
“Knowing whether or not you’ll receive paid time off is an important factor when budgeting for expenses during this time,” Brian Eder, co-founder, partner and wealth management advisor at Voyage Wealth Architects in Minnesota, wrote in an email. “Check your company’s paternity/maternity leave policy; if paid leave is not an option, explore other short-term options like disability insurance.”
Get Adequate Insurance Coverage
Couples must budget not just for the hospital costs associated with having a baby, but also regular prenatal visits and pediatrician visits.
According to Eder, labor and delivery hospital costs typically range from $11,000 to $15,000, but can vary depending on a family’s health insurance plan and any birth complications that may arise.
As such, experts say reviewing health care coverage options — particularly if a couple is able to choose between family plans through one person’s employer or another — can help reduce costs down the road.
New parents will also need to consider purchasing other forms of insurance to safeguard against worst-case scenarios.
“The biggest gap I see broadly is a complete lack of life insurance and disability insurance, or they’re extremely underinsured,” Watson says. “You’ve brought a life into the world and you have to care for them, so updating the life insurance is a big one for me.”
Balance Long-Term Savings Goals
Many couples are balancing savings goals such as buying a home and saving for retirement with the costs of starting a family. A budget can help achieve these goals, as well as the new goals families may set when a child is born such as saving for education costs.
“If you plan to pay for your child’s education, consider starting a college savings account (i.e., 529 account) to help prepare for the cost of college tuition and other education-related expenses,” Eder says. “The earlier you start, the better.”
Each couple’s financial goals will be different, but covering the financial basics and making a budget to prioritize expenses and goals earlier rather than later can help couples manage the costs of this extreme life change.
“The best time to prepare, save money, get proper insurance and write a will is in the months leading up to welcoming your new child,” Eder says. “You will never have as much time to complete these important items as you do before your new baby has arrived home.”
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Correction 06/30/21: A previous version of this article misstated the location of Voyage Wealth Architects.