money talk

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.

Step 5: Prepare to raise your child to age 18> The U.S. Department of Agriculture publishes the annual report “Expenditures on Children by Families.” The report for the year 2000 (available at found that it costs a middle-income family (families with a pre-tax annual income of $38,000 to $64,000) approximately $205,381 to raise an only child to age 18; expenses are estimated at $165,630 to raise a second child. These figures do not include inflation.

The main objective is to make sure you have enough income to handle the ongoing expenses. Effective budgeting and career decisions are the most important things to consider.

Step 6: Start saving for college> The average cost to attend and live at a four-year public university is currently $11,976 a year, according to the College Board, a nonprofit association that helps prepare students for college. Multiply this by four years and factor in an inflation rate of 5 percent per year over the next 18 years, and you’ll be looking at total college expenses of $124,225. If you start saving now, you can meet this goal by setting aside $320 a month.

Two good choices for college savings are the Coverdell education savings account (formerly the Education IRA) and the 529 plan. With both programs, your money grows tax-free and remains tax-free if used for qualified education expenses. The Coverdell account can be set up with a brokerage firm or mutual-fund company.

With the 529 plan, your money is invested in a professionally managed portfolio that corresponds to the age of your child (more stocks when she’s young, more bonds as she moves closer to college age).

Also investigate other opportunities to save for your child’s education. For example, a program called Upromise offers a free and easy way for anyone to contribute tax-deferred money to a child’s college fund. A portion of money that you, your family and friends spend via participating well-known companies (such as McDonald’s, AT&T and many more) goes into a tax-free Upromise account. You can also open a 529 account through Upromise (managed by a reputable financial firm) and have the money automatically deposited into it.

Step 7: Enjoy your child>Do your research and know what’s ahead financially, but don’t get so obsessed with the numbers that you forget to savor time with your baby. These are precious moments that you don’t want to miss.