Can You Afford to Have Kids?
Use These Tips To Review Your Family Financial Situation
Having kids can be emotionally rewarding but financially draining. According to the USDA, it costs more than $233,610 to raise a child to age 17. That doesn't include the thousands of dollars you may spend putting them through college.
If you considered only the financial implications of having children, you might end up childless. Fortunately, most people don't base this important decision on financial issues alone. As with any other decision that will impact your financial situation, it's smart to go into it with your eyes wide open and being prepared. The changes that accompany adding a new little member to your family can be stressful, but you can greatly reduce the stress by minimizing the financial factor.
Planning Financially for a New Baby
There are several financial issues to weigh in the balance when planning to have kids, starting with how it may affect your household income. Taking time away from work during and after pregnancy may require you to rethink your budget completely if your paycheck shrinks.
Check with your employer to see if you're covered by short-term disability insurance, which covers pregnancy. A typical policy will pay 60% to 70% of your gross income for approximately six weeks following the birth of your child (there may be a waiting period of a week). Do the same for the other parent if both of you are planning to take time off from work after the baby arrives.
Even if you don't have disability insurance, your employer may be required to grant you time off under the Family Medical Leave Act (FMLA), but they're not required to pay you during that time. Whether or not you'll receive salary or disability benefits, schedule out your expected income and expenses, and make sure you can make ends meet.
Once you have an idea of how much income you'll have coming in when there's a baby in the picture, you can make adjustments to your budget. You should also be thinking ahead long term if you decide to stay home while your partner works. It may be necessary to significantly cut your spending to make a one-income household situation work.
Review Your Healthcare Plan
While you're checking on disability insurance, make sure you know what to expect from your medical insurance coverage. The provisions of your policy will determine how much money you'll end up paying out of your pocket.
Consider deductibles, co-pays—the typical co-pay is 20% that you pay and 80% for the insurance company in a non-HMO type plan. Also, find out how much it will cost to add a dependent to your group medical insurance policy. If both you and your spouse have health insurance available through your employer, look at the terms and costs of both policies. Decide whether it makes more sense financially to have you all covered on one plan or to split the coverage between the two plans.
If your employer offers a flexible spending account, it would be wise to put some money into it to cover unreimbursed medical costs. For an explanation of Flexible Spending Accounts, see How FSAs Maximize Your Employment Benefits. A Health Savings Account can also be used to pay for certain pregnancy-related expenses and preventative care services for your child.
Assess Child Care Costs
Probably the biggest expense you'll incur once the baby is born (excluding a college education) is for child care, which is especially expensive for infants. Even when your child is old enough to go to school, you'll have after-school care, summer camps, and other related expenses.
Check out day-care providers well in advance of the birth of your child to find one that you feel comfortable with and that you can afford. If you want to be able to deduct your child-care expenses from your taxable income, you'll have to choose a licensed provider because you have to report his or her social security number to the IRS when claiming the deduction.
As soon as you start thinking about having a baby, start a baby savings fund. Put a set amount into the account each pay period to cover unexpected expenses and those expenses you've already factored into your budget.
Be savvy about shopping and bargain hunt for baby equipment and supplies. It's important to buy the best car seat, stroller, etc., to ensure your child's safety, but your baby will quickly outgrow many of the other items you'll buy, and paying full price is often a waste of money. Talk to friends, check stores that sell used goods, visit yard sales, etc. Your baby will never know the difference.
Think Long Term
Having a baby can have an immediate impact on your finances, but you also have to consider the bigger picture. Will having a child allow you to continue pursuing your other financial goals, such as saving for a comfortable retirement or buying a home if you haven't done that already? If you own a home, would you need to upgrade to something bigger, which might mean a higher mortgage payment? Are you planning a job change that could impact your salary or your health care benefits?
All of these are important questions to ask during the "have a baby/don't have a baby" debate. Talking it over with your partner and examining all the financial angles can help you decide if you're ready to make the leap into parenthood.
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