Having a baby (or babies!) and starting a family means so many exciting, happy, but also unknown things. For first time parents, in particular, it means navigating the often head-spinning tasks of feeding, caring for, and cleaning a baby while also working, taking care of the house, and if you’re lucky, sleeping.
For most new parents, there’s not enough time in any day to get everything done, and by the end of every day you’re exhausted. Making time for budgeting, financial planning, and taking steps to prepare for the child’s future can often seem so far out of reach.
But at the end of the day, it must be done. A recent study found that in the first year alone, the cost of raising a baby can run upward of $21,000 – and that’s not even factoring-in any unexpected illnesses or conditions an infant might have early-on, which are quite common. From the time the baby is born until he or she turns 18, the total cost of upbringing can range from $260,000 (“no-frills”) to $745,000.¹
In short, it’s no financial walk in the park.
Collin Thorne, Operations and Trading Specialist at WrapManager, and his wife Michelle had their first child in July 2018. “We honestly can’t think of any really big, unexpected costs in the past handful of months. We are very lucky in that we stocked the nursery with items that Michelle’s sister and parents saved for us. They gave us probably $1,000 worth of furniture – including the crib, a changing table, a bouncer, swing, etc. – and then probably 100 or so onesies. Through our jobs we both have a premium hospital plan that has really covered everything so hospital costs have been little to nothing.” He followed up by adding that while their baby budget right now is going toward a consistent supply of diapers, the future costs of daycare (which averages about $2,000/month in their city) is a big expense that is on their mind.
Katie O’Connor, Director of Client Services, had her first baby with her husband Barry in February and was able to scrounge up her total billed amounts for some of their biggest costs. Here is a cost breakdown before health insurance was applied.
- Pregnancy tests, including check-ups: $2,512.09
- Hypno-birthing classes: $200 – 400
- Labor classes at the hospital: $85
- Pre-natal and newborn photography session: $300 – 500
- Labor: $45,288.75
- Doula for labor: $500 – 1,000
- Take home medicines: $35.52
- Six-month check-up for Mom and baby: $3,355.68
Katie added “an interesting thing that I came across during pregnancy is that there are ‘standard’ tests, as considered by medical professionals, during pregnancy that some insurance companies do not regard as ‘required’ and therefore don’t cover 100%, for example, the 20-week ultrasound! Also, because the baby takes every nutrient in your body and you experience a lot of new hormones while pregnant, it can cause a big deterioration in your teeth, which added another $1,000 to the total bill for us.”
Having an advisor in your corner can help – someone to help you budget, manage your finances, and remind you to save both before and after the baby comes.
Seton McAndrews, a Wealth Manager at WrapManager and the father of two young children, explains that planning for future costs like college is obvious to most new parents, but it’s also important to think about what medical costs you’ll have to cover based on your individual insurance coverage, how much diapers will cost (and how often the baby will need new sizes), and whether or not you’ll be feeding the baby formula – a choice that is sometimes dictated by the child or mother’s health post-partum.
He adds, “with the Tax Cuts and Jobs Act that was adopted in December 2017, 529 education savings plans can now be used for pre-college expenses at private or religious elementary or secondary schools up to $10,000 a year per beneficiary.” These can help cover the costs that parents incur trying to make certain their child has the best foundational education experience possible.
Leslie Horgan, a Client Service Specialist at WrapManager, chimes in on the cost of pre-elementary age schooling. “I feel like the cost of pre-school – which can’t be paid for with 529 plans – is a little daunting at first, but overall, childcare costs in general are a bit of a shock. My husband had an FSA at the time that was a great benefit for us because the funds were set aside tax free and could be used to help cover the costs of pre-school and other approved childcare expenses. Oddly, the waitlists for daycare and pre-schools are almost more of an issue than the cost of care itself, depending on where you live.”
Sometimes we’ll hear stories of new parents who are so overwhelmed by caring for the new baby – and the expenses that come with it – that they decide to put their savings and retirement planning on hold. But doing so can mean missing valuable years for compounding returns, and it can truly jeopardize your ability to reach your retirement goals. Even if you do not think it’s possible to save with a new baby, it very well can be – it just takes some planning.
Parents who are new to budgeting might want to consider sitting down with a financial advisor to map out monthly expenses and establish a consistent savings program. One idea is the 50/30/20 approach, where 50% of your income goes to household (and baby) needs and bills, 30% goes to extra accessories or vacations or sitters, and 20% goes to savings and investments. A good financial advisor can help you evaluate what savings and investment plan is best for your family and your goals.
But Wait Don’t Forget about Estate Planning
Wait a minute – estate planning?! Isn’t that supposed to be for retired individuals with wealth they want to pass down to future generations? The answer is yes, but new parents also need to think about estate planning as well. Should something happen to one or both parents, it is absolutely essential that there is a plan in place to ensure the care and financial security of the child or children.
Here are four steps to consider taking with regard to estate planning:
- Life Insurance – many new parents have probably already thought of life insurance or purchased it, so this is just a reminder to ensure it still has enough coverage. How much life insurance you need depends on your income needs, your goals for the child’s financial care (college?), and your retirement goals.
- Create a Will – many folks tend to forget that in the absence of a written will, the state of residence may have default laws where the estate’s money is split between the surviving spouse and the children. If the spouse does not have full access to the estate it can cause issues, for obvious reasons. It is important to state clearly where assets should go and how the child should be cared for.
- Name Guardians and Trustees – in legal estate documents, naming a guardian means establishing the person who will serve as the de facto parent should something happen to the actual parents. The guardian decides where the child goes to school, curfews, meal plans, and everything associated with the day-to-day. A trustee is the financially empowered person who would pay the bills, file the income tax returns due (if applicable), and manage the finances left behind for the child.
- Check Your Beneficiary Designations – generally speaking, naming a spouse as the primary beneficiary on life insurance, retirement accounts, etc. makes sense, but it is not advisable to name a minor as a contingent beneficiary. If in step 3 you’ve named a trustee for assets in the estate, then naming the trustee as the contingent beneficiary could make sense.
Finally, it’s often a good idea to keep you documents safe and sealed, and to share copies with trusted advisors/lawyers and other members of your family.
Working with WrapManager
We realize that even just reading this article may have been overwhelming, what with all of the financial and estate planning considerations mentioned. Raising a new child is difficult enough.
That’s why it can be advantageous – and quite relieving – to work with an advisor who can help you organize your finances, make a spending and savings/investment plan, and put the mechanisms in place to execute it. The Wealth Managers at WrapManager can help by guiding you every step of the way and being your advocate for whatever challenges and joys (another baby?!) life brings.
Get started with us today by calling 1-800-541-7774 or start a conversation over email at firstname.lastname@example.org.