My husband and I were married for several years before we were ready to even talk about having kids. We wanted time to travel, build our careers, and simply be together without having to worry about diaper changes and pediatrician appointments.
Once we were ready to consider a family, we came up with a checklist of financial criteria we needed to meet before taking the plunge. It was a daunting task, but we wanted to make sure we were financially stable before bringing children into the mix.
If you’re considering kids, you may be faced with the same dilemma. Although there’s nothing like the feeling of your son or daughter giving you a kiss goodnight, the estimated cost of raising a child these days is close to $250,000 – and that doesn’t even include college tuition. Before you take the plunge yourself, try to check as many of these items off your list as possible.
Moves to Make Before Having Children
1. Have a Steady Source of Income
It’s one thing to have a job that pays the bills, but it’s another thing to have a stable, secure job. While it’s true that no industry is immune to economic turmoil, some jobs offer more protection than others.
Ask yourself these questions when deciding whether the time is right to have kids:
- Have I Been at the Same Job for More Than a Year? It’s common to change companies several times over the course of your career. But if you’re thinking of children, it’s wise to wait until you’re established at your current place of employment.
- Am I a Permanent Employee With an Official Title? There’s nothing wrong with temping, but unless you’re a full-time, permanent employee at an organization, you likely don’t have health benefits and your company is under no obligation to hold your job for you while you’re on maternity or paternity leave.
- Is My Paycheck Consistent and Reliable? Some people work on commission; others are subject to the ebbs and flows of freelance work. You may feel more confident bringing children into the picture if your take-home pay is at least somewhat predictable.
- Is My Company Stable? You can’t predict the future, but you can pay attention to signs that your company may be closing up shop. If budgets are consistently getting slashed and people around you are getting laid off, take it as a sign that your job may not be as secure as you’d like.
You may have some wiggle room on the job front if your spouse or partner’s income is more reliable than yours. For example, if you’re a freelancer with sporadic paychecks, you might not need to worry if your spouse is a financial advisor who is paid regularly.
That said, it’s always nice to have two steady, stable jobs, so you might want to make some changes before having children, including the following:
- Seek a permanent position at your company if you don’t already have one
- Change your compensation structure so you receive a weekly or biweekly paycheck instead of solely relying on commissions
- Secure a job at a company in better financial shape than your current one, and take a year or two to establish yourself until you expand your family
2. Create a Budget
With all the unknowns of raising children, it’s more important than ever to create a budget you can really stick to. You need to get an accurate picture of how much you’re spending and where you might need to cut back. Your budget should account for all of your fixed expenses, such as your car payment or cable bill, and leave some wiggle room for the variable costs you might encounter, such as medical bills or seasonal travel.
You can create a budget and track your spending with software like Quicken. Alternatively, you can set up your own spreadsheet, or use a web-based program like Mint.
Be sure to include the following line items:
- Rent or mortgage payment plus real estate taxes
- Homeowners insurance or renters insurance
- Auto insurance
- Car payment
- Transportation costs, including gas, tolls, and bus or train passes for commuting
- Home maintenance costs, including things like lawn and maid services
- Utilities, including your electric, gas, and water bills
- Cable, phone, and Internet fees
- Medical costs, including insurance, medications, and copays for recurring appointments
- Groceries, toiletries, and cleaning supplies
- Gym membership
- Childcare or preschool fees
- Recreation and leisure, including movies and dinners out
In addition, be sure to include a line item for home repairs and improvements. This can be tricky since it’s a variable cost, but a quick look at your previous year’s bank or credit card statements should show how much you spent. Divide that number across 12 months to come up with a monthly allocation.
The same concept applies to gifts and obligations. If you know you plan to attend several summertime weddings or expect a big gift exchange during the winter holidays, take that amount and spread it out over 12 months.
3. Establish an Emergency Fund
You never know when an emergency or unexpected job loss might leave you without an income, and when you have children, the prospect of not being able to pay your bills is even more frightening. Before you take on the responsibility of a family, set up an emergency fund to cover three to nine months’ worth of expenses.
To figure out how much to put in your emergency fund, consult your budget and calculate how much you spend each month on life’s necessities. While you can always temporarily cut out things like recreation or a gym membership to save on expenses, items such electricity and food are nonnegotiable.
Keep in mind that while some of your expenses may go down while you’re unemployed, others may go up. For example, if you spend $300 on a monthly train pass, you can deduct that amount from what you need to save since it’s a direct cost of going to work – as long as you don’t still require the transportation to look for a job.
On the other hand, if you spend $200 per month on health insurance because your company subsidizes the total cost of your premium, your healthcare expenses may rise while you’re unemployed, as you may be forced onto a new plan or required to pay for your current plan in full.
4. Set Up a New Baby Fund
Bringing a baby into the world means facing a number of expenses up front. To help ease the burden, set aside a fund dedicated to immediate and short-term baby care needs.
Medical care is possibly the single greatest expense incurred when having a baby, and your out-of-pocket prenatal and newborn baby care costs depend on whether you have insurance and what type of plan it is. You could end up spending as little as several hundred dollars or upward of $10,000 depending on your coverage, or lack thereof.
To determine how much you may pay out-of-pocket, review your policy to find out what you’re responsible for. If you don’t have insurance, talk to your healthcare provider about fees, or purchase coverage before you conceive. Depending on your income, you may be eligible for state or federal programs that subsidize your insurance payment. Keep in mind you may face tax penalties under the Affordable Care Act if you or your children don’t have sufficient coverage.
In addition to medical care, set money aside to cover the following gear, furniture, and supplies:
- Car Seat. A basic model costs as little as $60, but higher-end models cost $200 or more.
- Stroller. Basic models cost $50, but you could easily spend upward of $500 on one with more features.
- Baby Monitor. A basic audio monitor can cost as little as $40, while video monitors typically cost $100 to $200.
- Crib and Bedding. You can find a safe, reliable crib for as little as $150, though some models sell for more than $2,000. Factor in an additional $100 to $150 for a crib mattress, plus $100 for a bedding set.
- Dressing Table or Changing Pad. A dressing table costs as little as $100, though a fancier model could set you back $300 or more. If you already have a dresser that’s the proper height, you could purchase a changing pad for $30 instead and place it on top of your dresser. Just make sure it offers a secure place to lay the baby.
- Highchair. Space-saver models that strap onto regular chairs cost $50 to $80, but most standalone models cost $80 to $150.
- Feeding Supplies. Expect to spend $40 to $50 on a feeding pillow and another $10 to $20 on burp cloths. If you’re formula feeding, bottles and nipples are a necessity, and starter sets cost $25 to $60. If you’re nursing, you may not need the bottle set, but factor in $60 for a few nursing bras and $30 to $35 for a manual breast pump, or $100 to $500 for an electric pump.
- Basic Newborn Wardrobe. $200 should buy you a collection of onesies, pajamas, outfits, and socks to get you through the first couple of months.
- Diapering Supplies. Factor in $30 to $50 for a diaper pail and $40 for a basic diaper bag (though you could easily spend upward of $300 for a name-brand model). Add in another $100 for your first month’s supply of diapers, wipes, and ointment.
- Bathing Supplies. An infant tub costs $30 to $40. Also factor in $20 to $30 for soft, infant skin-friendly towels and washcloths, and $30 for soap, shampoo, a comb, and a nail-grooming kit.
- Toys. You don’t need a lot of toys right away, but budget at least $50 to purchase a few rattles and a mobile, which costs $20 to $40.
5. Kickstart Your Retirement Savings
Once kids come into the picture, it may be harder than ever to put money aside for retirement. That’s why it’s so important to get into the habit of saving for retirement before you have children. The sooner you start, the more time your money has to grow.
Retirement plans allow you to save money you don’t plan to access until retirement in accounts that generally help reduce your tax burden. If your company offers a 401k plan, start contributing as early as possible. The pretax contribution limit, according to IRS guidelines, is $18,000 for 2015 for people under the age of 50. Some employers offer a 401k matching plan where they match your contributions dollar for dollar up to a certain amount. If you can’t swing the full $18,000, aim to contribute enough to take advantage of whatever matching program your company offers, as it’s basically free money.
If you’re self-employed or don’t have access to an employer-sponsored retirement plan, you can set up an individual retirement account (IRA). According to IRS guidelines, the maximum contribution for 2015 is $5,500 for those under the age of 50, with tax savings applicable on that $5,500 for those married and filing jointly with a modified adjusted gross income of $183,000 per year or less.
6. Pay Off Credit Card Debt
Still carrying an old credit card balance? Once you incur the added expenses that come with having kids, you’re less likely to have room in your budget to chip away at that old debt. Plus, the interest on it can make the expenses your child requires that much harder to manage.
While it’s true that baby-related expenses tend to be significant in the beginning, they don’t completely go away once your children are done with diapers. In fact, school-aged kids can be more expensive than infants because they require more expensive clothing and food, and money for activities such as soccer lessons and ballet classes.
No matter the age of your children, they are going to tug at your resources. If you have a chance to pay off your credit card debt, do it now.
7. Start a College Fund
With the cost of college today, you really should start thinking about saving for your child’s education before you even get pregnant. According to The College Board, these are average costs of college tuition, fees, and room and board for the 2014-2015 school year:
- $18,943 for a four-year public college in-state
- $32,762 for a four-year public college out-of-state
- $42,419 for a private four-year college
The earlier you’re able to start saving for your child’s education, the more likely you can afford it when the time comes. Even if you’re only able to put a small amount of money into an account earmarked for college, it’s a great way to start off on the right foot. Here are some options for kicking off that college fund:
- 529 Plan. With a 529 college savings plan, the earnings on your investments grow tax-free and can be used for qualified educational expenses. You can open a 529 plan even before your child is born. Just put the account in your own name and then plan to change your beneficiary once your child is born and receives a Social Security number.
- Coverdell Educational Savings Account. A Coverdell ESA is similar to a 529 plan, only it comes with income-related limitations. If you and your spouse make more than $220,000 per year, you’re not eligible for an ESA, and regardless of your income, you’re allowed a maximum contribution of $2,000 per year. Like the 529 plan, you can open an ESA in your name and designate your child as its beneficiary after birth.
- Upromise. Upromise is a program that allows you to earn cash back on regular purchases that can eventually be used to pay for college. You can open an account in your own name and designate beneficiaries after the fact. Unlike 529 plans and ESAs, with Upromise, you don’t actually have to contribute your own money. Rather, you earn cash back on expenses such as online retail purchases and restaurant meals.
8. Obtain Health Insurance
The cost of prenatal and newborn care can be significant, and having health insurance can help limit your out-of-pocket expenses during what could otherwise be a financially draining time in your life. If your employer offers a plan, consider opting in if your participation cost is reasonable. According to a 2014 report by the Kaiser Family Foundation, workers contribute an average of $90 per month toward their premiums for their own individual coverage, and an average of $402 per month for family coverage.
If your employer doesn’t offer insurance, or if you’re self-employed, you can shop around for the most affordable plan that meets your needs. The Kaiser Family Foundation reports that the average annual premiums in 2014 were $6,025 for individual coverage and $16,834 for family coverage.
If you can’t afford private insurance, look into your options under the Affordable Care Act, which provides coverage for those who aren’t offered insurance through their employers. Obamacare data shows that more than half the people who are signed up for 2015 coverage under the Affordable Care Act pay a monthly premium of $100 or less after tax credits.
9. Purchase Life Insurance
If you don’t already have a life insurance policy, now’s the time to get one. A life insurance policy can help ensure that your beneficiaries, such as your spouse, partner, or children, are financially covered in the event of your death or long-term inability to work.
You have two basic options for life insurance:
- Term Life Insurance. This type of insurance offers coverage for a specified period of time. It is generally less expensive than whole life insurance and comes with a predetermined guaranteed death benefit. With term life insurance, your premiums increase at preset intervals, such as 10 years, 20 years, or 30 years depending on the type of policy you purchase.
- Whole or Universal Life Insurance. Also known as permanent life insurance, whole or universal life insurance provides a death benefit that never expires. As long as premiums are paid, the policy should last until you die and provide benefits for your family or heirs. These policies often also provide certain living benefits, such as the ability to borrow money against the policy.
Regardless of the type of insurance you choose, you must decide how much coverage you need. Many financial experts recommend that your death benefit be six to eight times your annual salary, but there are other considerations to take into account, such as your home ownership status and anticipated number of dependents, as well as how much you can afford. If you’re unsure about your coverage needs, talk to an independent financial advisor and take the time to shop around for the right plan.
10. Create a Will
A will does more than just protect your assets; it also makes provisions for childcare in the event that you and your spouse or partner are no longer around. Your will can include provisions for an unborn child, and can also be amended after your baby is born.
You have two options for creating a will:
- Do It Yourself. You don’t actually need a lawyer to create a valid will. You simply need to be 18 or older and of sound mind. You also need to sign your will in front of two witnesses and make sure it’s accessible in the event of your untimely passing. You can use an online program or software to draft one for less than $100.
- Hire an Attorney. The cost is significantly more, but a lawyer handles all the details for you. Some attorneys charge a flat fee for drafting a will, while others charge an hourly rate. If you use a lawyer, expect to pay anywhere from $300 to $1,000 for an average, uncomplicated will. If your assets and estate are complex or a trust needs to be established, a lawyer could cost upward of $10,000.
11. Secure a Stable Housing Situation
You don’t need to own a home in order to have a baby, but you should make sure your housing situation is stable before trying to conceive. This means making sure your living space can accommodate an infant, and that you’re not in danger of losing it in the near future.
- If You’re Able to Buy a Home: Though you may need to put down up to 20% of your home’s purchase price, buying, in many ways, is a more stable long-term scenario than renting. With renting, you run the risk of having your rent go up, or having to move unexpectedly if your landlord decides to reoccupy or sell. However, if you buy a home and finance it via a 30-year mortgage, you’re locking in a fixed monthly payment for the next 360 months. Though you still face certain unknowns with buying, such as property tax increases and potential repairs, you also get to reap the tax benefits, such as deducting your mortgage interest on your income taxes. Also, if you buy a home before expanding your family, you have the luxury of settling into your new place and tackling renovations and repairs without a crying baby on your hands.
- If You Plan to Continue Renting: Try to renew your lease at a favorable rate and for at least a year’s time. This way you won’t have to worry about a move. If you’re a good tenant and your landlord has no plans to sell or reoccupy your home, you may be able to negotiate a multi-year lease for even less than what you currently pay.
Whether you decide to continue renting your current space, rent a new place, or buy a home, make sure your living space is suitable for an infant. It should ideally include a spare room to use as a nursery and ample storage for baby gear. It’s also essential that the home can be baby-proofed by blocking access to stairs, covering electric outlets, and putting soft bumpers on sharp corners and edges.
12. Acquire a Reliable Means of Transportation
Unless you live in a place with reliable public transportation, a safe, dependable vehicle is essential. Even city dwellers with access to public transportation may find that owning a vehicle becomes necessary once kids are in the picture.
- If You Already Own a Vehicle: Get your car inspected and address safety or operational issues immediately. You may need to spend anywhere from several hundred to a few thousand dollars on auto repairs. If your car is old or requires numerous repairs, it may make sense to sell it and use the proceeds to acquire a new one.
- If You’re Buying a New Vehicle: Decide which type of car you want and shop around for the best possible deal. Be prepared to put down up to 20% of the car’s purchase price, though you might snag a deal where you’re required to put as little as $500 to $1,000 down. Your initial and monthly payments always depend on the price of the car and your financing agreement.
If you plan to drive fewer than 10,000 miles per year, leasing a car is a viable option to consider. Some leases are available with no money due at signing. Others require anywhere from a few hundred to several thousand dollars down. Some monthly lease payments are as low as $200, while others top the $500 mark.
Having a baby changes everything, and being in a financially sound place before starting a family can make your adjustment less stressful on many levels. Keep in mind that while checking off all the items on this list may prepare you financially for having children, nothing can prepare you for the emotional changes. Having a family is a wonderful, amazing thing – just make sure you’re completely ready for one.
What financial moves would you suggest before having kids?