What to Financially Expect, When You’re Expecting

By Geoff Schaefer

Geoff is a Wealth Advisor with Intergy Private Wealth. He writes for The Steadfast Fiduciary to help people live with an abundant heart, open mind, and boundless generosity.

October 18, 2023

There is nothing that compares to excitement, joy and love that we experience as humans than to meeting your child for the first time. Everything everyone tells you about how you will feel does no justice to the actual moment. Just to clarify, I am talking about actual humans. Those dog and cat “parents” don’t really count here. (Just kidding, but not really). Parenthood is a beautiful privilege and responsibility.  The moment your child comes into the world, everything will change. Your worldview will immediately change. Your finances will change.

So, what are considerations when a baby is on the way, or you are a new parent?

  1. Budgeting will change.  With a child comes increased expenses and a potential for lower income.  Nearly 25% of US households drop to a single income when kids come along.  In some cases, this income drop lasts for a few years, in others, it is permanent. No matter, less income is a potential reality for those planning to start a family.  Now add the increase in expenses.  Diapers, clothes, baby soaps and lotions, toys, are all things you have never paid for before.  Not including childcare, your budget could increase by a few hundred dollars per month. For most parts of the country, tack on $250-500 per month for diapers, wipes, formula, and clothes and you can start estimating what your budget will look like.  Plan for this ahead of time.  Start living off your new budget a few months prior to get used to it. See if it is reasonable to keep your saving rate or discretionary expenses at their current levels. If childcare is going to be needed budget much more. More on budgeting here: Budgeting
  2. Plan for a lot of one-time expenses.  Healthcare is a major one here with the average childbirth costing $13,811 according to the healthcare institute.  Now that is before health insurance, so individual costs will depend on your insurance coverage, but regardless, it will be a big expense. After healthcare cost, big ticket items like a crib, stroller, car seat, etc. add up quite a bit.  For many, grandparents and parents are eager to chip in, but if not, budget a few thousand to cover one-time purchases to get your home baby ready.
  3. Life Insurance becomes a need you cannot ignore.  For married income earners, life insurance is often appropriate but still could be viewed as a luxury.  Once a child enters the situation, life insurance switches from a good to have to a must have.  Outside of some ultra-high net worth families, there are few situations where the loss of a parent will have no financial impact.  This is part of the responsibility piece to parenting.  Once you have brought a child into the world, be sure you can financially support them for at least the next 18 years, whether or not you are alive.  The exact insurance type can vary based on income and life situation, but for most, tacking on a term policy that lasts 20-30 years and covers 15-20 times annual income is a good starting point. Should You Consider More Insurance
  4. Estate Planning follows insurance.  Right after you apply for your life policy, go make an appointment with an estate planning attorney.  A will, power of attorney, possibly a testamentary trust should all be explored to answers questions like:
    • If my spouse and I pass away, who will take care of our child?
    • Can their caretaker access money on our child’s behalf?
    • When can my child access our money?
    • Should anyone else be involved in the raising of our child?

An estate plan, much like life insurance, goes from the nice to have category, to the must have!

  1. Reprioritize your saving and spending.  For most families, there is not a large amount of excess cash annually to spend.  Perhaps investing is not as simple as maxing out your retirement accounts anymore.  You want to save for college?  A 529 account may be great, but without extra income, perhaps you have to lower your retirement savings a bit?  A family trip once a year?  Sounds great, but again, requires money that maybe you do not have in the budget right now.  A reprioritization is in order.  Would you be willing to work an extra five years to ensure you have regular trips with your family? If yes, lower retirement account savings to make room for a lifestyle expense (or an investment depending on how you look at it).  Is having financial flexibility a top priority? Maybe save in a more flexible account, like a non-qualified brokerage account that can be turned into college savings down the road.  Thinking through this and identifying priorities for your new family is very important. A firm grasp on your financial purpose will help answer many questions that arise in the future. Financial Identity
  • Here’s a few final considerations for new parents:
    • 529 account for College Savings- allows for tax deferred growth and tax-free withdrawals for college savings. Long term disability insurance. Most employers offer a group policy of 60% or so.  Especially if you are a single income family, look into getting more.Dependent Care Flexible Spending Account- offered through an employer and can make some childcare cost tax deductible.
    • Ensure your taxes reflect your family with kids.  You can update your W-4 to withhold less taxes as a dependent child qualifies you for the Child Tax Credit

Life will change in many ways as you raise your family.  Be flexible, have fun, enjoy the time you are blessed with. All this planning is done to facilitate that quality time and the memories that come along with it. So, while there are a lot of considerations for new parents, be mindful not to let the planning get in the way of the reason why you plan.

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