Assessing Financial Readiness for Parenthood
Before you start picking out onesies or decorating a nursery, take a close look at your financial situation. The average middle-income family in the U.S. spends about $250,000 to raise a child from birth through age 18, excluding education expenses, according to the U.S. Department of Agriculture. This translates to roughly $13,000 to $15,000 per child annually.
While fully preparing for the financial and emotional aspects of parenthood is challenging, taking these steps can help ease the financial burden:
1. Do I Have a Solid Emergency Fund?
Building an Emergency Fund
Aim for 3-6 Months of Expenses:
Ensure you have a substantial emergency fund. If you’re among the half of millennials without emergency savings, start building one now. Mary Beth Storjohann, a finance coach and founder of Workable Wealth, emphasizes, “If you are spending all your money now and not saving, it’s only going to get harder when you have a little one.”
2. How Will We Pay for the Medical Bills?
Understanding Medical Costs:
Check Your Insurance Coverage
Spend time on your insurer’s website to understand your coverage. The average single person with an employer-based plan pays over $1,000 annually in premiums and faces about $1,300 in out-of-pocket costs before hitting a deductible. For family coverage, premiums can reach nearly $5,000.
– Use Tax-Favored Accounts:
Consider setting aside money in a health savings account (HSA) or a flexible savings account (FSA) to help offset out-of-pocket costs.
– Review Plan Options:
Having a baby qualifies as a life event, allowing you to switch insurance plans outside of the open enrollment period. Investigate whether a different plan might better suit your needs post-birth.
3. What’s Our Childcare Plan?
Planning for Childcare:
Discuss Expectations with Your Partner:
Whether you plan to be a stay-at-home parent, use daycare, or hire a nanny, childcare will significantly impact your budget. Matt Becker, founder of Mom and Dad Money, advises, “Have a conversation with your partner about what you expect your family life to look like. You may have different expectations, and it’s good to get that out in the open.”
Test Drive Your New Budget:
Prepare financially by simulating your future budget now. This could mean reducing expenses to live on one income or setting aside childcare costs each month. Get rough estimates by contacting local daycares or checking websites like Care.com.
By taking these steps, you can better prepare for the financial responsibilities of raising a child, helping to ensure a smoother transition into parenthood.