How much is the cost of a child? We brought in Certified financial planner Cheryl Nelson Boyd to help us lay out the basics about babies and money, while providing great tips for managing your financial future.
Like it or not, babies are a significant expense. The more you know about preparing for this next chapter of your life, the more confidently you’ll be able to handle the unexpected. After all, caring for a newborn is hard enough — you don’t want to be focusing on these things postpartum.
Understand Your Budget
When thinking about and planning for the cost of a child, the first step is understanding your current budget. This is a great jumping off point, because you’ll determine how much is going out every month, and what needs to be adjusted to make room for new baby-related expenses. Start by breaking down your monthly spending into two categories, e.g:
- Non-Negotiable Spending
- Mortgage or rent
- Discretionary Spending
- All the fun stuff
Once this is all down on “paper,” you’ll have a much clearer view of your finances.
Then, add baby’s first-year line items to your budget:
- Formula and bottles
- Diapers — cloth or disposable diapers
- Baby washes, soaps and lotions
- Car Seats, Strollers, Cribs etc
- Clothing —make sure you have enough sizes all the way up to 1 year
- Doctor’s appointments
Childcare is by far the biggest expense in the first year. It’s also likely this expense will stick around between 4 and 6 years depending on when your child is off to public school, Cheryl says. These costs have a huge range, some can be a few hundred dollars a week to $5,000 per month, so it’s worth discussing early on so you can start budgeting for it now.
Just to give a little insight into the cost of diapers. If you go the disposable diaper route, experts advise you to budget $75/month. You can expect to go through 3,000 diapers in your baby’s first year alone.
Start Saving for Baby
After you’ve made your budget, look at the areas that you’ve identified as discretionary. Those are the areas you want to target for saving money.
In the first year, diapers, wipes, formula, and clothes can cost anywhere from $200 to $400 a month, and it can be much higher when adding in childcare. So add that expense into your cash flow while you’re pregnant so that you can start to build a little buffer for that first year.
Budget $250 of those discretionary funds directly into a savings account to start building up an emergency fund, and then when other larger expenses start to hit, there are already resources in place. When you actually start paying for formula, diapers, and daycare, you’ll already be used to and it won’t feel as shocking.
“It’ll always be shocking to you what you order on Amazon at three in the morning, but won’t be as challenging from a budget standpoint, because you started getting into that place early.”
Pro tip: Utilize your local or online consignment store to see what brands are resellable. These are on-demand brands with loyal customer bases that might be able to put a little money in your pocket, or get you access to baby gear for a lower cost. Especially those big ticket items like cribs, strollers, swings and carriers.
For long term savings goals, start looking at your options now.
“It’s very important to save for your kids,” Cheryl says. “And those accounts can be savings accounts, money markets, CDs, stocks, mutual funds, so there’s a lot of flexibility in what type of account you can own.
“What’s so important for people to realize is that legally, that money becomes the child’s when they reach the age of majority.”
Plan for the Unexpected Cost of a Child
Budgeting for baby before your baby arrives can save a lot of tedious work and unexpected costs down the road. Planning for the cost of a child is all about drilling down on the controllable vs. uncontrollable factors of life and preparing as much as possible.
Cheryl recommends re-examining these plans yearly, or when big life changes occur, to make sure they’re up to date.
- Health Insurance Coverage
Know what’s covered and what’s not regarding your prenatal care and delivery, so you can plan for those costs ahead of time. Find out how to get your baby covered once they’re born.
- Life and Disability Insurance
Make sure you have the right insurance in place and that you’re leveraging your employee benefits.
“I think life insurance is really important for young families because at this stage, in our life, for most people, you’re more on the wealth-building payment plan,” Cheryl says. “So life insurance is meant to cover that.
The Not So Obvious Financial Planning
When you’re getting advice on any of this, whether it’s life, disability, home insurance, auto insurance, umbrella policies, you want that advice from a fiduciary, someone who has a fiduciary responsibility to act in your best interest and give you objective advice.”
- Estate Planning
To top it all off, it’s important to look at estate planning, specifically two main categories: power of attorney and guardianship.
- Power of Attorney
It’s important for pregnant women to think about who would make medical decisions on their behalf, i.e. their power of attorney. While we absolutely hope for the best case scenario when we’re pregnant, the reality is it’s an incredibly complicated medical event in your life. So if something does come up, you’ll have a voice in your corner.
- Power of Attorney
- Estate Planning
While there’s already a lot of planning to do during pregnancy, it’s crucial to appoint guardians for your new bundle of joy. Guardians are people who agree to assume responsibility for your child in the very unlikely event something happens to both parents or the main parent.
A little known fact about guardianship is you can appoint two different people for two different roles: one person aligned with your values and beliefs that would be responsible for raising your child, and another to handle the financial element.
“That’s what I recommend to my clients, because even if there is one magical unicorn in your life that would do everything like you, most of the time, you just don’t want to create a conflict of interest, and you can appoint two very easily.”
The Gotchas in Pregnancy Budgeting
Pregnancy costs can be confusing and sometimes catch you off guard. Getting ahead of these “gotcha” moments can save you a lot of stress and financial heartache.
Find out what coverage you have, what’s covered vs. what’s not, including specialty care like acupuncture, pelvic floor physical therapy or chiropractic care.
Private Cord Blood Banking
Both the extraction and private storing of cord blood isn’t a one-time expense. Be prepared to continue paying for it, which can cost up to $10,000 for its lifetime. This isn’t to be confused with cord blood donation, which is free of charge; however, you won’t have access to your baby’s specific cord blood in the rare event it’s needed. These annual recurring costs can add up when calculating the cost of a child.
Estate Attorney and/or Financial Planner
There are several one-time costs for a professional to develop these documents for you.
Identify what part of your leave is paid and how much you’ll continue to earn (it’s different in every state), and find out if short-term disability covers any of your leave. Meet with your human resources department to identify what your health coverage looks like while on leave, which can vary from company to company.
If you’re a consultant or a 1099 employee you won’t have maternity leave coverage, so figuring out how long you can realistically take is important.
Pre and Postnatal Therapies
If services like chiropractic care, pelvic floor therapy, acupuncture and birth and postpartum doulas are needed, determine the out-of-pocket costs and find out what’s covered by your insurance. Did you know Breast Pumps are covered by most insurances. Make sure you look into that before spending out of pocket money!
Some of these seem really obvious when calculating the cost of a child, but others are not.
Talking to Your Kids About Money
We learn a lot of our financial behaviors from our parents who learned it from their parents, who learned it from their parents, and so on. So the way you handle money will be passed down through generations.
“Talking to your kids about money, making them aware, making them comfortable, is just so important for parents.”
Cheryl recommends starting as early as toddlerhood to start making connections between items and money.
“Even when you’re taking your toddler to the store, and they grab an orange, you’re like this orange costs a dollar and 10 cents, and they don’t necessarily know what you’re talking about. You might sound weird at the grocery store, but just starting to bring that awareness, so as their brain is growing and developing, they can connect. We get things because we buy them and we buy them with money. What is money and how is it used?”
Teaching your kids about money and bringing those conversations into the home are exponentially more important in my opinion, then setting up savings accounts, Cheryl says. These accounts are great if they fit and if that’s your financial intention, but you really want to communicate how your child can use those accounts.
The Mom Tax: the unexpected cost of a child
The mom tax is very real.
What exactly is the mom tax? It’s an expression used to describe that when a woman becomes a mom, it might cost her in money, time, emotional stability and career options. These impacts are harder to measure when thinking about the cost of a child.
Though it’s commonly known as the mom tax, Cheryl refers to it as the family tax in her podcast episode.
“The reason I call it a family tax is because if you’re in a career where your earnings change or you decide to go part-time and your benefits change the compounding effect on your 401k match, and that 3 to 5% is no longer a part of your retirement picture, this costs women hundreds of thousands of dollars, even millions of dollars over a lifetime potentially.”
While there are protections in place for pregnant women, there are no policies to protect moms and the day-to-day of working families.
“Right now as working women, we stand on the shoulders of women that did not have any [support]. The data is overwhelming that we have so much work to do to equalize the economy and the workforce for women.”
How to Prepare for the Mom Tax
When preparing for your mom/family tax, Cheryl recommends the following checklist:
- Am I an employee or a business owner?
- When you’re a business owner you have a little more control depending on your type of business and industry.
- As an employee of a company, clarify what mom life will look like in terms of culture and industry.
- What do I envision for working parenthood?
- Understand if what you envision as a working parent is something that exists in your industry or company. If it doesn’t the negative implications on your income and career are high.
- Knowing this ahead of time can allow to you explore different possibilities and options.
- Do I need to make a change?
- Once you gather all the above information, find out if there’s someone you can talk to for advice.
- Understand what working parenthood looks like in your industry or future industry.
While it can be awkward to talk about money among friends or colleagues, Cheryl encourages women to talk to each other about their careers and salaries when they become moms.
“Because the more we know, the more we can present a new way to do things and empower each other. And it’s important to know what companies are doing to these working moms, because in my opinion, it’s not right. And we won’t know that until we know how big the problem is.”
You may not be in an industry or in a company where there is support, but you could be the one that changes that,” Cheryl says. “And that could be a really dynamic and empowering part of your career if you have the emotional and mental energy to do it.”