From crib to college, a financial guide for new parents
Having a baby is, for most, one of the happiest times in life. The expenses that come with it, however, can strike fear in even the most laid-back of prospective parents. But with some research and planning, you should be able to have your baby and raise her without breaking the bank. Following are some steps to get you started. For even more help, consider consulting a certified financial planner.
Step 1: Start an emergency fund> A cushion of three to six months’ living expenses safely tucked away will give you peace of mind, especially in today’s uncertain economic climate. Evaluate your and your partner’s job security and then stash as much money as possible each month into a savings account or money-
market fund to tide you over in case of a layoff.
Step 2: Evaluate your life-insurance needs> Each wage earner should have term life insurance equal to about seven times his or her annual income. In the event of a partner’s death, the surviving parent will have enough money to cover the cost of child care, housekeeping and other services so he or she can work.
Step 3: Research your health-insurance coverage> What will it cost you to deliver your baby? That depends on where you live and your health-insurance coverage. Research your coverage and determine out-of-pocket costs for doctors’ fees, hospital services, medical procedures and drugs. Look into unexpected circumstances such as Cesarean deliveries, and don’t forget about the baby. She’ll need a newborn pediatric exam and frequent checkups.
If you are self-employed, find out before you get pregnant whether your health insurance covers pregnancy. Many policies require the purchase of a pregnancy rider before conception (a rider is special, extended insurance that covers a specific benefit). Find out if the rider covers the cost of doctors’ visits, prenatal care and baby care.
Step 4: Estimate first-year expenses> The average family spends $6,200 on baby products during an infant’s first year, according to Denise and Alan Fields, authors of Baby Bargains (Windsor Peak Press, 2001). This amount does not include the cost of child care. Their information comes from a survey of parents, government statistics and estimates from companies in the baby industry.
You can spend less than this, of course. Through a combination of smart shopping and sales resistance, you can keep your first-year budget under control.