With all the anticipation and joy that comes with starting a family, having children also marks one of the most significant financial changes in parents’ lives. And in today’s world, added financial challenges—an uncertain economy, high unemployment, less job stability and more onus on the individual to save for retirement and cover healthcare costs—make careful planning essential.
“There are additional stressors that add a level of complexity to beginning a family,” says Linda Descano, the chief executive and president of Citi‘s Women & Co. “You have to create your own safety net today.”
According to a recent report by online parenting network BabyCenter, the average cost of raising a child in the U.S. is $227,000 each—and that excludes college tuition. In a survey, 61% of moms said they worried about having enough money to raise their kids, and two-thirds said that paying for school and college was their top financial concern, followed by housing and then childcare.
To ensure that you’re prepared, ask yourself the following 10 questions before starting a family.
1. Can you afford big-ticket baby proofing?
Before you have the baby, Descano advises taking stock of the big-ticket purchases you may need to plan in advance. Is your 1996 Ford junker safe enough for prized cargo, or will you need to upgrade your car? Do you have space in your home for a nursery, and will you need to renovate a room or move? Add up the big baby-proofing costs, and create a plan to tackle them.
2. Have you budgeted the uptick in regular expenses?
With a new mouth to feed make sure you’re ready for all the little costs that quickly add up. Consider the diapers, bottles, formulas and clothes—and laundry detergent—that your newest addition requires. Will you have enough income to cushion the extra spending? You may want to check in with family members who could share some supplies. And Descano cautions: Stick to a budget. You’ll want to splurge on every sweet jumpsuit and teddy bear, but don’t charge up your credit card.
3. Is a warehouse-club membership right for you?
Consider buying necessities in bulk at a warehouse club like Sam’s, Costco or BJ‘s Warehouse. “You have to be careful not to overbuy,” Descano warns, “but with the right planning, you can stock up on the items you use and rely on the most, saving time and money.”
4. Will your health insurance meet your new needs?
Your health insurance might have sufficed before, but will it meet the needs of your new family? Now is the time to review policies and benefits to understand your options. Ask yourself whether your current plan covers both parents and children’s needs completely and economically
5. How will you manage childcare costs?
According to BabyCenter, a family’s average child-care costs are $755 a month, which amounts to almost 20% of the average monthly household income. Descano suggests researching all of your possibilities and crunching the numbers to make an informed decision. Look into an employer daycare or discount, private daycare, a nanny, nanny-sharing between families, a spouse at home or enlisting the help of a family member.
6. Have you researched parental leave options?
It’s important for Mom and Dad to find out what kind of parental leave options are available from their employers, including how much time is offered and how much time is paid. Then consider, “What can you afford to take? What does it mean to your income,” Descano asks, “and how can you ramp up savings beforehand?” You may have to reallocate spending or make tough choices about when to return to work.
7. Might you benefit from government programs?
Descano also advises speaking with your accountant, financial advisor or the IRS about your eligibility for government programs designed to offset the costs of a growing family. Ask about tax awards like the Dependent Care Tax Credit and pre-tax options like a flexible spending account, which would set aside money from your paycheck to cover childcare expenses.
8. Are all family documents updated?
A change in family headcount calls for a review of life insurance policies, wills (including guardianship) and retirement plans, says Descano. More importantly, if you haven’t set these items up yet, now’s the time. You should make every effort to protect your child in case something happens to you.
9. Have you reviewed long-term savings goals?
Don’t be one of the 61% of moms worried about paying a child’s tuition costs. Consider your priorities and plan ahead, says Descano. Is private schooling important to you? You may want to downsize your home or car payments. Do you plan on having multiple children? You may want to start putting money aside now for a bigger house or in college funds, if you plan on contributing. “Put aside what you can,” Descano advises. “It’s really about continuing to build savings.”
10. Do you have a plan for paying down debt?
Before the baby arrives, you’ll want to take a good inventory of all your debts, paying particular attention to credit card debt. Try to pay it down early, so if a true emergency comes up you’ll be ready to take on a necessary debt burden. Starting with a clean financial slate will put your new family on the road to a happy, healthy and rich future ahead.