I’m about to enter the third trimester of my first pregnancy. As a soon-to-be mother, I’m excited and scared. As a financial coach, I’ve been in planning mode for months. Having a child is not only a huge physical and emotional change, but it will also be a huge financial change. It’s important to me to understand and ensure that I am taking the right steps to prepare and protect our finances for starting a family.
I recently spoke to Chelsea Brennan, who is the founder of Smart Money Mamas and the annual Mamas Talk Money summit, about what steps new parents should take as they prepare to start a family. As it’s such a new, transformational time, and it can be easy to overlook the financial aspect, but it’s so important to keep money in mind as you are planning ahead.
Get Clear On Your Family Budget
Having a kid is expensive! There is a statistic out there that says that it costs about $250,000 to raise a child up to the age of 18. Luckily, Brennan clarified that the statistic includes the cost of buying a larger house, with the assumption that families tend to upgrade when they add a child to the mix. So if you don’t think you will need to move, you likely won’t spend quite as much as the statistic. However, there are still lots of expenses that come along with having a child. Whether it’s the supplies you need to prepare your home for the baby, or the items that you need to pay for to maintain the life and health of the child moving forward. It’s important to understand what these one-time and ongoing costs will be, so that you can create or adjust your family budget accordingly.
Some things to consider:
- Nursery items
- Childbirth and parenting classes
- Medical costs associated with prenatal appointments
- Medical costs associated with delivering your child
- Costs associated with adoption
- Insurance changes once you add a child to your plan
- Costs related to feeding: breastfeeding supplies, formula, food, etc.
- Clothing and accessories
- Car seat and other travel items
- The costs of upgrading to a more spacious home
- Childcare costs
Get Your Estate Planning Documents In Order
When we are planning to start a family, the last thing we want to think about is illness, injury, and death. Unfortunately, at the same time, these are exactly the types of things we should be thinking of as we are planning to add a child to the family. We can never anticipate the things that might happen to us, or when illness, injury, or death will come along. That’s why it’s so important to plan ahead and get organized so that our family will be taken care of if something is to happen. Here are the main things you should do as you think about having a child:
- Get life insurance. If you were to die, the last thing you want your family to worry about is money while they grieve for you. If you are the breadwinner, you want to make sure that your life insurance is enough to financially support your family for years to come. Even if you are not the breadwinner in your family, it is worth getting life insurance. Look at how you support and contribute to your family. Non-financial contributions matter too, especially when you take childcare into account. If you’re employed, look into whether or not your employer provides life insurance. However, if it’s not enough to financially protect your family for years (which it often isn’t), you should get a supplemental life insurance policy. If you don’t know where to start, check out Policy Genius to compare policies and pricing.
- Create a will. This is something you should do if you have any meaningful assets, regardless of whether or not you have children. However, it becomes even more important when you have people who are dependent upon you. Set up a will that clearly outlines where you want your assets to go in the event of your death. If you can’t afford to hire an attorney, or perhaps you’re just not ready to commit to that, there are plenty of online options you can choose from. For estate planning, in particular, check out Willing and Trust & Will.
- Designate a healthcare proxy. It’s scary to think about death, but there is planning to be done if you were to become unconscious or otherwise incapacitated. Make sure you designate a healthcare proxy and make your wishes known so that your family knows which decisions they should make for you if you were to become sick or injured and unable to make your own medical choices. Not only does this ensure that your wishes are followed, but it will take a lot of pressure and stress off of your family during an already difficult time.
- Choose a guardian for your children. This is a hugely important step. Once a child is in the picture, you want to make sure they will be properly cared for if you and your partner were to become incapacitated or pass away. If you don’t designate someone specifically to care for your children, the state will have to make that decision. Again, this will add a lot of unnecessary stress and grief to an already painful situation. Talk to your loved ones and figure out who would be a good fit. Make sure that the person you choose also feels comfortable taking on this enormous responsibility. You should also make sure that this decision is noted in your will.
- Get disability insurance. As we’ve seen with the COVID-19 pandemic, we really have no idea what might happen in life. Sickness and injury are not something we can anticipate or plan for, but there are still ways to protect ourselves and our families. One in four Americans live with a disability, and those living with a disability are more likely to end up unemployed or out of work at some point in their lives. That’s why it’s so important to have disability insurance that will put money back in your pocket when you need it. If you are self-employed, or if you know you won’t be provided paid family leave, make sure you sign up for disability insurance before you even get pregnant. Once you’re pregnant, you won’t be able to qualify. If you’re looking for a place to start, check out Breeze.
Prioritize Your Retirement Planning
It’s so important to remember that while you can take out loans for things like buying a home, going to college, or buying a car, you can’t actually take out a loan for retirement. When we are caring for other people, it can feel like we have to prioritize them over ourselves at every turn. But the truth is, if you don’t prioritize your retirement planning, everyone will end up being hurt in the long run. If you don’t have enough money invested to care for yourself in your retirement years, it’s likely that your children will have to be the ones to care for you, physically and financially, if needed.
So make sure to review your investment plan early on while you’re starting a family. At the very least, make sure you’re contributing to your employer-provided retirement plan and getting any match amount that they might offer. If your employer doesn’t offer a retirement plan, you should open an IRA and get started from there. If you can, reach out to a financial planner to get guidance and support so that you know you’re allocating your money in the right way to reach your long-term financial goals.
Clearly Plan Your Parental Leave
If you are going to be a working parent, make sure you get really clear about what your parental leave will look like. Find out exactly how much time you’re allotted through your employer. Your partner should do this too. Everyone should be taking as much parental leave as they possibly can, so that we can not only get the healing and bonding time we need, but so that we can also normalize this benefit.
Once you understand your parental leave policy, start working with your manager to create a transition plan. According to Brennan, this is a great time to have important conversations with your manager and team members. “Obviously, there are a lot of things that you do that your employer doesn’t realize that you do, that your team members don’t realize that you do. And so creating as clean systems as possible, and communicating whether you’re going to be available or not available on maternity leave [is important].” It’s not possible for everyone to be completely unavailable during family leave and still maintain their position at work, so make sure you understand if that’s the case for you and that you set boundaries with your colleagues. This can be a really powerful move for your career, as you show that you want things to move smoothly while you’re gone and continue to succeed when you come back.
If parental leave is not an option for you, see if there are other solutions you can take advantage of. If you can afford it, the Family and Medical Leave Act (FMLA) “entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave.” You can also see if your employer will allow you to move to part-time or incorporate flexible hours.
Don’t Make Any Big Life Decisions Within Six Months Of Your Child’s Birth
This piece of advice has come up whenever I talk to anyone about starting a family and becoming a mother for the first time. Brennan’s advice was no different: “Do not make any major life decisions in the first six months after your kid is born. Ideally a year, but the first six months after your kid is born, they will be changing constantly, you will be changing dramatically, you’re going through hormonal stuff – you might have postpartum depression – there’s a million different things that can happen in that six month period. Whatever your plan was – you’re going to go back to work, you’re not going to go back to work – stick to it and reevaluate after six months.” Once you’re able to adjust to your new life circumstances and get back to a place where you feel more like yourself again, take the time to reevaluation your life decisions.
If you follow these steps as you prepare to start a family, you’ll be much better off, both financially and in terms of stress. You’ll know that you are doing the things you need to do to protect yourself and your family from financial hardship and uncertainty. Good luck!