Baby Makes Three
by Gary Foreman - gary@stretcher.com

Description: Tips for getting financially ready for the birth of your first baby.

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Your friends are planning a baby shower. Mom’s tummy is growing and she looks more radiant every day. The happy parents are making plans for the baby’s room. All this activity and yet there well may be something that they’ve forgotten.

Can that very small person can cause large changes in your finances? Let’s take a look and try to help our new parents get financially ready for the big day.

The first item on the agenda is to recognize the fact that the methods you used before may not be sufficient now. When you first got married you might have said, "you pay the rent and I'll use my paycheck for the groceries". But that won't get the job done any more.

The cost of diapers, clothing and formula can cost $5,000 per year. And that doesn't even include day care. You'll need to do some research. Prices vary from city to city. You'll make choices like disposable diapers vs. cloth. That will affect how much money you spend. Talk to your friends and find out what their bills look like.

If both parents have been working, the biggest question is whether one of them will stay at home with the baby. The alternative is using a daycare arrangement.

Choosing whether to have a stay-at-home parent is not an easy decision. Many parents are surprised at how little money is actually earned by the second breadwinner when expenses are deducted. For instance, someone earning $20,000 per year ($9.61 per hour) could find their take home pay reduced by as much as 75% when taxes and the additional expenses of working are factored in.

The 'stay-at-home' decision is one that needs to be discussed thoroughly. It involves much more than just money. Some parents are very happy staying home with children. Others are not. Career plans, the pace of family life, baby's health and more can all be affected by the choice you make. Once you've made that decision it's time to look at a proposed budget. If a family is used to spending all of the current income, some adjustments will be required. You can’t take a budget that’s tight now and shoehorn in the extra expenses of a baby.

Begin with your current budget and talk about how the baby will affect your life and your finances. You can expect to find changes on both the income and the expense side. Even if both parents will continue to work, wages may be affected. A sick baby may need either Mom or Dad to stay home from work. For many employees that means that they won’t get paid. Some parents will choose to take advantage of the "family leave". That can mean up to three months of lost income.

If both parents will work the next big decision is what type of day care to seek. You'll need to call around to find costs in your area. They'll vary widely. According to the Children's Defense Fund, full-time daycare can cost between $4,000 and $10,000 per year. A Runzheimer survey compared full-time costs by city. The lowest cost was Tampa, FL at $260 per month. Manhattan was the highest at $1,125 per month.

You'll also want to consider whether that bundle of joy will consume any of the savings that you've been accumulating. If our parents don’t have insurance, the cost of a relatively normal delivery including two days in the hospital and doctor’s bills will run about $6,000. A Cesarean birth can cost $10,000. It's also a good time to think about what happens if Mom or Dad should die prematurely. Our new parents should take a look at their insurance requirements. Younger parents don't expect to get sick or die. And, while it may be permissible for someone without children to have minimal insurance, it's not OK for our new parents. Should one parent die, the survivor will not only face the loss of income, but will find that it's more expensive to raise a child in a one parent home. And the cost of insurance isn't that great. For instance, if our young mother is in her 20's and doesn't smoke, she should be able to buy $1 million in term life insurance for less than $50 per month. There's more than financial issues to consider. It's essential that you have a valid will. You may know that you want your sister to take care of the kids if something should happen to you and your spouse. But, without a clear statement to that effect in a valid will, the state will follow their own rules. Their choice may be dramatically different than yours.

And don't forget to look at disability insurance. Losing income for a number of months can put a financial hurt on any family. But, for a family with small children, it can be especially hard. And roughly one in seven full-time workers will endure a disability lasting five or more years before reaching age 65.

Bringing a new life into the world is a wonderful time. It’s a time of great joy, but also a great responsibility. You love that baby. Please don't forget that part of demonstrating that love is caring for their needs.

Reprinted with permission. Gary Foreman has worked as a Certified Financial Planner and currently edits The Dollar Stretcher newsletter. For a sample issue, send your name and address, along with $2 to: The Dollar Stretcher, Dept OL, PO Box 23785, Ft. Lauderdale, FL 33307.

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