Expecting a new child in your family, through birth or adoption? Here are some things to keep in mind.
First of all, congratulations! The decision to add to your family is exciting and filled with hope. I’m thrilled for you and your family.
Now, let’s get down to business. Having a child, whether it’s your first, second, or fourth, comes along with a lot of financial responsibility. After all, you’ll be responsible for providing for that child at least until they’re 18! According to the USDA (link opens in new tab), it costs over $233,000 to raise a child born in 2015 until they are 18. That doesn’t even count the cost of college. That cost translates to $12,980 annually for a middle income family, according to the site.
Are you a new parent, expecting a baby, or planning to adopt? Here are some financial considerations.
- Get your estate in order. Do you and your partner/spouse have a will and estate plan? That usually comes along with a will for each of you, along with (potentially) a trust that specifies how you’d like children to be cared for, as well as powers of attorney for healthcare and financial decisions. This last one is important especially for a woman giving birth. Now that you’ve got a dependent, you need to make sure that you’re able to make decisions about how your estate is settled and the dependent is cared for, instead of the state making those decisions for you which happens without a will. Talk to an estate planning attorney in your area to get started. Read more about estate planning for everyone here.
- Life Insurance. Do you and your partner have a life insurance need, and sufficient coverage for that need? Term life insurance can be an affordable way of protecting income in the untimely event of a partner’s death. And while your considering life insurance, look at your disability insurance coverage too. Pregnant women can qualify for life insurance, sometimes without a physical exam. Talk to your life insurance agent for details.
- (Financial) Birth Plan. If you’re awaiting your child’s birth, you may have already started creating a birth plan. But do you know how much the birth could cost? Call your health insurance company and ask them what coverage you have, and what you might expect to pay out of pocket. Costs for a birth can range widely, depending on where the birth takes place, type of delivery, and whether there are complications for the mother or the baby. Here’s an article that provides some details (link opens in new tab). Talk to your provider about the costs to get an idea of all the possibilities. And work on saving up the cash you might need to pay for these bills so they aren’t an unwelcome surprise.
- Are you adopting? There are many ways to add to your family through adoption, and costs vary widely among the options. Adopting an older child through the foster system, for example, will have a very different cost than adopting a newborn through a private placement. Costs also vary widely by state. Here’s an article (link opens in new tab) from the New York Times about three different family’s adoption journeys.
- Parental Leave. Check with your company to find out what maternal and paternal leave benefits they offer. This varies widely by company so make sure you know what your benefits are. If the leave is unpaid, this means you’ll need to adjust your budget to accommodate the period of time when your family may not have its typical income. Save money now to prepare for that time. Here are some budgeting ideas that might help.
- Day Care vs Nanny vs Stay-at-home-parent. What are your plans for childcare after the baby is born and parental leave benefits are depleted? Will one of you stay home with the baby for a period of time? Would day care or nanny be better for your situation. Talk to friends or coworkers with children in your area to find out what they do and get ideas. Then start researching. Day care and nanny costs vary widely by geographic area and by the type of service you want. In any case, there will be a financial impact to your family, so be sure to weigh all the costs and associated benefits before making a decision.
- Tax Credits. How will this new bundle of joy impact your family’s taxes? Even if your child was born on December 31 at 11:59 pm, you may be able to claim the child as a dependent on your taxes. If your child has been born in or earlier than 2021, there may be special advance tax credits that impact your situation. Talk to your tax professional for details.
- Saving for College. It’s not too early to start saving for college! You can open a 529 college savings account and save monthly, letting your money grow over the 18 years it will take for your child to reach college. Read more here.
These are just a few of the practical considerations I talk to my clients about when they are planning for a child, or have a newborn.
Every situation is different, so please talk to the financial professionals in your life before making decisions about how to handle the financial aspects of your new bundle of joy.