This is the first in a series of stories offering help with "Hot Topics": tricky family conversations that have real financial impact.
For young couples still paying off college debt and early in their careers, having a baby can create an acutely adorable case of sticker shock. Failing to discuss how to fit such a cost into your budget could strain both your wallet and your relationship -- and leave you and your partner scrambling to provide the kind of care you want.
Raising a child now will cost the average American family $245,340, according to the U.S. Department of Agriculture -- and that doesn’t even include college expenses.
Before you and your honey even tackle the question, get a rough sense of your costs, which may not fall neatly in line with the national average. You don't need to calculate the next 18 years of expenses, but you can at least focus on the short term. “Babycenter.com has a great tool to help you get started, and you can modify it for your own particular situation,” says Pensacola, Fla., financial planner Matt Becker. It factors in prices for one-time buys like a crib as well as recurring expenses like diapers. Use it to get a rough budget estimate, says Becker. If you have friends who’ve recently started a family, ask them about the costs they’ve incurred, especially any surprises, to get another estimate that could be more closely tied to your geographical area or current lifestyle.
Remember that while a baby adds some major new expenses, it also cuts spending in other areas, like entertainment and dining out, says Seattle financial planner Stacy Gallagher Ployhar.
Also, learn what maternity and paternity benefits your employer offers, recommends Los Angeles financial planner Jennifer Hartman -- because that will affect the extent to which your income could take a hit.
“I know we’ve talked about starting a family, but I’m worried we won’t be able to afford to have a baby for years.”
Share your financial anxieties about starting a family -- and ask whether your partner shares them, or has different ones. For many couples, the greatest anxiety comes from not understanding your current habits, Becker says, so use a budgeting app like Mint.com to track your spending and understand what you could give up.
“Is there anything we want to do before we have a child? You always talked about getting a master’s degree.”
You may be able to reduce some shared anxiety by framing the conversation as when, not if. Do you have any other goals -- traveling, going back to school, paying off credit card debt -- that you want to achieve before a child’s arrival? Separately, list three to five things you want to accomplish that could derail your family plans. Then talk through them together to prioritize, says Hartman, and use those lists to create a timeline. “Listing a few top goals allows for some give and take if you disagree on the priorities,” says Hartman. Just keep in mind that not everything needs to happen immediately: If having a child is a priority, don’t set up so many roadblocks that you delay it indefinitely.
“My parents both worked when I was growing up, but I think I would want to take at least a few months off work -- if not a couple of years. What do you think?"
This hits a couple of hot-button topics -- not only the desire to spend more time with a new baby, but also changes to family income and the cost of care. Often, spouses start out with different assumptions. Share your own childhood experience, outline what you would ideally like to do -- and then ask the same of your partner. “Significant problems can arise by not understanding how both partners see their roles in having children,” says Hartman.
If one parent is to stay home, at least for a while, you'll need to discuss both the short-term hit to your income and any longer-term effect on career goals. If both parents continue to work, you need to think about both logistics and cost of childcare, which accounts for at least 25% of household income for more than a fifth of parents, according to a survey by Care.com. If you both want to stay home, you’ll have to consider alternating time off or dipping into savings to afford the dual-income loss.
“This is one of our most deeply held values -- there is no easy solution if you disagree,” says financial therapist Amanda Clayman. You'll both need to open up about your concerns, says Clayman. Maybe your spouse fears the instability that comes with losing an income, or maybe you fear missing bonding time with the baby if you return immediately to work. Then think of ways to alleviate those concerns rather than arguing about time off.
Again, a clear budget will give you the best sense of what concessions you may have to make. You may need to establish limits on the amount of time you each can off work -- with each spouse taking only six months instead of a year, for instance.
“Do we really need all this baby stuff?”
Once you start looking at costly baby supplies, it's easy to feel overwhelmed. Plenty of retailers are happy to make you think that you need the latest of everything to be successful parents. But you don’t. Focus only on the necessary -- a car seat, clothes, feeding equipment, and crib. “Beyond that, everything else is additional. Buy only the basics before the baby gets here,” says Becker. “Add as you gain experience and decide that there's something in particular that you need.”
Remember that your baby will never know that your stroller or crib is second-hand -- or that it never got the teething toy all the mommy blogs rave about.
Once you've mapped out a budget, start living on the reduced amount -- well in advance of the baby's arrival. This will help you spot any problem areas and make tweaks early on, so that you can live with the adjustments, says Ployhar, the Seattle planner.
Put your savings aside in a separate account to give yourself a cash cushion for when the baby does arrive. “This will relieve a lot of the financial anxiety that can come with a growing family,” says Becker.
Could your family get by on a single income for an extended period of time? If not, buy life and disability insurance for one or both breadwinners even before the child arrives. (Don't forget to factor those premiums into your post-baby budget.) “No one expects something to happen to them, but you’ve got to think about your child -- and how losing one parent’s income, especially if it is the sole income, will affect your family’s standard of living,” says Hartman.
ONE FAMILY'S SOLUTION
“I worked with one family that didn’t know how they were going to pay for daycare for their daughter,” says Becker. “So we dug into their cash flow and looked at all the areas where they were spending. They’d moved to a new home and were buying a lot of furniture and yard stuff ... It was an unnecessary expense. They also spent a lot on dining out, so they switched to meal planning to efficiently eat at home. Doing these things cut down their spending by several hundred dollars a month, and they were able pay for their daughter’s care.”