Starting a Family? Your 5 Most Pressing Money Questions, Answered
Starting a family, or even starting to think about it, is an incredible stage in life. But it can also be overwhelming. You might be thinking about the hard questions: What will your life be like with a newborn? What will you and your partner be like as parents? Should you move closer to family?
And—of course—how on earth will you afford this?
As a financial planner who specializes in working with couples and new families, I often help people think through this time. Here are five of the most common money questions on their minds—and likely yours:
1. How much does it cost to have a baby?
A Google search of this question will return a huge range, but the real answer is: It varies tremendously depending on your level of coverage, and you’ll need to dig into the details of your insurance and medical providers.
The good news is, with some planning, you may be able to pay for medical bills with pre-tax dollars to cut down on the costs. With a PPO, you can set aside pre-tax dollars in a Medical Flexible Spending Account, up to $2,600 for 2017. (Note: FSAs are use it or lose it, so make sure to spend that money in the year contributed!)
If you have a High Deductible Plan, you will have to meet a higher deductible (hence the name), but you should be contributing to a Health Savings Account with pre-tax dollars to cover those costs. The max family contribution to an HSA is $6,750 for 2017.
Thanks to the Affordable Care Act Women’s Health Amendment (2014), maternity coverage is currently covered by all health insurance plans. This includes outpatient services (such as prenatal and postnatal doctor visits, gestational diabetes screenings, lab studies, and medications), inpatient services (such as hospitalization and physician fees), newborn baby care, lactation counseling, and breast pump rental. However, certain high risk tests may not be covered. Ask your health provider and insurance company to be sure.
Another thing you may want to plan for is fertility treatment. Some employers are beginning to cover this—select tech companies offer fertility benefits up to $40,000 and drug coverage up to $20,000—however, the majority of women pay out of pocket. The average fertility treatment costs around $12,400, while multiple rounds can cost up to $100,000. Starting to plan for these costs earlier can take the stress out of the process.
2. How much should we budget for a child?
This number is also going to vary depending upon your needs. The first thing to consider is how much you want to shell out for things like baby furniture and gear, which can quickly add up to thousands of dollars, depending on what you’re looking for. So the most important thing to do is set aside a budget and decide how much you’re willing to spend. In general, I tell clients to budget $200-400 per month for baby supplies like diapers and formula.
Another cost to plan for is term life insurance. Nobody wants to think about this, but when you have dependents, well—they depend on you. You need enough term life insurance to cover at least income replacement until the little one gets to college. For most, this is around $1 million. Believe it or not, this size policy can be quick and easy to get and won’t break the bank. So, just apply and get it done. You’ll have peace of mind knowing it’s taken care of.
Of course, the biggest cost for most people is child care, which ranges from $1,200-$4,000 per month, depending on whether you opt for daycare, a nanny, a nanny share, or an au pair. Also, infant care typically costs more because you need more child care providers to give more attention to each infant on site at daycare facilities, which is a cost that will drop as your child gets older and fewer staff are needed. (Head here to see the options and typical child care price points in detail, so you can start to plan.)
3. How much time can we afford to take off?
This, again, depends, and you need to look into your state’s laws and employer’s plan and think through how much time you and your partner can realistically take off.
Unfortunately, the United States is the only industrialized country in the world without a policy for providing paid parental leave, and only 13% of employers offer it. California, New Jersey, and Rhode Island all offer partially paid parental leave—for example, California offers six weeks paid at 55% of your salary, up to a maximum weekly benefit of $1,173. While this helps, it is probably not enough to cover your expenses.
There is a movement for companies to offer more time off and some form of paid leave, but in the meantime, if you don’t have employer sponsored benefits, you will need to dip into savings. Calculate the lost income you will have over the timeframe you would like to stay home with your child, and consider whether you can save for this in advance. Think of creating a lump sum of money that can be your “paycheck” to yourself for staying home and bonding with your baby.
4. Should I stop saving for retirement and start saving for my child’s college fund?
For this question, the answer is the same for everyone: No.
Why? Retirement is your largest financial goal, and each year provides you with a tax advantaged opportunity to save for it. Let the power of compounding work for you. Also, keep in mind that you can always borrow for your children’s college, but you cannot borrow for retirement.
If the costs of childcare strain your ability to save for retirement, you can adjust it, but don’t take your savings down to zero. At a minimum, put in the maximum amount of matching you get from your employer. Don’t get a match? Still contribute! Figure out what you can afford to save and set it on autopilot so that it is a non-negotiable goal.
5. Yikes, this sounds like a lot. How am I ever going to afford it?
I know the costs can seem overwhelming, and believe me, I’ve been there too. Take a deep breath, and know that with some advance planning, everything is going to be alright.
The early years of childhood can be expensive, especially if full-time childcare is needed or you are going down to a single income. But eventually, that beautiful baby is going to go to school. For most parents, cash flow is very tight from birth until age 5, but things get a lot better once kindergarten starts. The goal is to hang in there, do what is right for your family, and know that there is light at the end of the tunnel.
In the meantime, decide what is really important to you. Make sure to take any extra money, and first, maximize your retirement savings, and next, start saving for college. High school graduation will be there before you know it.
And no matter what, remember to think of these expenses not as a cost, but as an investment in your family.
Need help financially planning for your new family, but don’t know where to start? A SoFi Invest advisor can help navigate the financial aspects of parenthood. With a new baby on the way, consider checking out term life insurance with SoFi as well.