You're Having a Baby!

A new child impacts most parts of your life. Sleep deprivation may be the most immediate and directly-felt impact, but there is also a significant change to your finances. The decision to have a child is a major milestone and defining moment in life. And as with all major life changes, being aware of the financial implications and having a plan for addressing them is vital.

It might be strange to think about if you can “afford” a child, but in our modern world, children are one of the largest expenses a family will incur. According to a 2015 United States Department of Agriculture study1, the average cost to raise a child born in 2015 from birth to age 17 will range between $212,300 and $454,770, depending on the family’s income. The higher the income, the more families spend on their children. For many parents, this figure is just the beginning, with college tuition bills still to come.

Build a Plan

Given these large numbers, parents should spend time analyzing how their new “bundle of joy” affects their overall financial plan. A simple plan laying out your income and expenses can be developed using Quicken or on a spreadsheet. If your situation is more complex, you might consider hiring a financial planner. Look for one with the CFP® (Certified Financial Planner) designation who charges an hourly or fixed rate (i.e., does not get paid commission for selling you products). Resources for finding a planner include: www.fpanet.org and www.garrettplanningnetwork.com.

Income & Expenses

With a new baby, your household expenses will increase, including:

  • Basic infrastructure: car seat, stroller(s), crib/beds
  • Child care (nanny, daycare, babysitters)
  • Medical expenses not covered by insurance
  • Smaller, but recurring costs: diapers, formula, clothes
  • Upgrading your housing to accommodate a larger family

Switching from a two-income to a one-income household? If so, remember your lost income may be partially offset by reduced income and payroll tax expenses (Social Security and Medicare). But also consider the potential loss of valuable benefits, including employer retirement plan contributions and subsidized medical insurance. Even if both parents plan to continue working, time off for maternity leave may temporarily reduce your income.

Investments

This is also a good time to re-evaluate your investments. If you already have a holistic investment plan in place, you will probably want to reassess based on a new outlook on your future income, expenses, and potentially a different comfort level with investment risks. For example, if you won’t be saving as much in the near future, you might consider a lower risk portfolio, since you won’t have new money to invest in a market downturn.

If you don’t have a formal investment plan in place, this is a good opportunity to develop a strategy tailored to your age, investment goals and risk tolerance. When many people start investing, they put a little money into mutual funds and perhaps buy a few shares of stock; all without thinking about their overall portfolio. If this is your situation, you may want to seek advice in crafting an appropriate portfolio allocation (or use one of the online tools available).

If you have previously spent time researching investments yourself, consider if this is still how you want to spend your free time. An investment professional can provide an objective third-party viewpoint, an established investment process, and hopefully a broader perspective on investment choices.

She Who Fails to Plan, Plans to Fail

Taking a few hours to think through the financial implications of your new life is time well spent. Expenses will increase, household income will potentially decline, and your family’s saving and investing plans should reflect these new realities.

1 Lino, Mark. (2017). Expenditures on Children by Families, 2015. U.S. Department of Agriculture.

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