The following is a guest post from Elle at Couple Money.
My husband and I recently became parents for the first time this summer. We have a healthy baby girl and are absolutely loving it. When we first found out we were expecting, like many parents to be, we wanted to get an idea of what we're getting into. One of the first things that struck me was how many people mentioned how expensive kids could be. The good news is that it probably won't cost you as much as the USDA estimates, but raising kids does affect your finances. If you're a first time parent it can be hard to know what you need to do to handle the changes. I wanted to share what has worked for us and what I wish we knew earlier.
Set Your Family's Financial Priorities
Many well meaning family, friends, and strangers will have plenty of advice to give you for your family. I've found some helpful information among the comments, but the truth is only we know what will probably work for our family. While our baby girl is loved by many, we're responsible for taking care of her and no one loves her like we do. The two of you have to sit down and discuss what's important for you as a couple and what's important for you as a family. What goals (financial and other) do you have? When do you want to achieve them? For us, having me being able to work from home was important. That meant, though, that I would cut back on taking on new work for a bit as I adjusted with having a baby at home with me. I also had to save up some to take care of my 'maternity leave'. For the months leading up to the birth, I made sure that money was being allocated to savings so there wouldn't be a huge change to our cash flow.
Hold Off on That College Fund
I've had several people tell me that we should get started with saving for our kid's college fund. They don't want their kids to go into debt for a college education. My husband and I want to set aside a bit of money for college, but we also realized that there are a few financial milestones we need to have in place before we start socking away money for her. The first thing we wanted to do before she arrived was increase our emergency fund. Not knowing how much the first year of baby expenses will cost us made us realize we wanted a bigger buffer. For estimates on a ballpark figure I checked and asked friends who have kids how it went from them. We also took into account our health insurance deductible. While my husband's job offered a partial reimbursement, we planned into the budget that the reimbursement may be delayed. (Happy to say that the company paid it promptly.) We also want to make sure that our retirement contributions weren't going to be sacrificed for the college fund. Some parents may question putting our retirement ahead of our kid's college savings. However we'd rather our kid working for scholarships and grants instead of her going to college for free, but having to financially support us when we get older.
Accept Help and Gifts
I will tell you right now that the best gift we received was the 3 weeks of help we received from our family when we brought the baby home. Our mothers took turns and helped us make the transition. We prepared a few meals, but hardly had to use them the first month because our family and friends took care of it. I will admit I was nervous about having family live with us for an extended time, but it was a blessing. We got to bond with our daughter without stressing out about day to day stuff. We saved a bit of money as well since we didn't have to grab a quick dinner. So if your friends and family offer to help you, please talk it over and consider if it's a good move. It can be a huge stress relief. Accepting help also means that you're open to finding deals by shopping around and being frugal. We've had several friends of ours share some of their favorite places to pick up baby gear and supplies. We have a consignment shop nearby that has fantastic deals on baby items. I've also learned from other personal finance bloggers about the good deals I can for baby items like diapers with Amazon Mom. I've saved 20% compared to local stores and I get it delivered to our place.
Start Planning Ahead
Being a parent means making long term decisions and tough choices, that includes preparing a will, living trust, and life insurance. We want to have enough money in the policies to cover paying off the mortgage and have some money to cover living expenses for a period of time. We've also talked about the possibility of who we would like to be guardian of our daughter should something happen to the both of us. We haven't made a decision on who to ask to cover this precious responsibility, but we're not going to make this decision lightly. Planning ahead for the baby also meant having health insurance for her. My husband checked with his company's Human Resources Department to see what we needed to do to get our daughter covered under his health insurance policy. It meant an increase in premiums, so we had to budget accordingly. I didn't realize how quickly it jumps when you add a child.
Lead By Example
My baby has no idea of our financial circumstance and won't for awhile since she's just an infant, but we still want to lead by example.
- Budgets: We've had a family budget since we were married. Our plan has basically been to keep all our necessary expenses under 1 income and use the second to pay off debt, save, achieve family goals. We'll continue to adjust the budget as our circumstances changes. We will include our daughter in discussion when's she old enough so she can be comfortable dealing with money.
- Giving: We feel that money shouldn't be hoarded; it's merely a tool to use. If the opportunity presents itself to help someone we believe that we should help. We hope our daughter feels the same way and we'll work on being transparent with our giving so she can see the benefits of sharing.
- Saving: Before we make big purchases we save up the cash for it. Yeah, we missed a few great deals, but I don't want our daughter to get into a “buy now, pay later” mentality with her spending. I'd rather she see the effort involved in saving up so she can appreciate yje value of money and her purchases more.
Will we get this right on the first try? No; we understand that we'll make mistakes and have to change up how we teach our daughter based on her own personality and needs.
Thoughts on Becoming Parents
Are we perfect parents? Most definitely not, but we're willing to do our best. One of our goals is that our daughter will be able to be a financially responsible and independent person. I hope some of these tips can help other new parents. This is definitely a topic that needs more input - too many things to mention. I'd love to hear your perspectives on what new parents need to know. What were some of the biggest surprises and lessons you had as a parent? What advice would you pass on to other parents? For me, I'm so excited at how much FUN it can be hanging around our daughter. I also have learned to be more productive with my free time; putting things off is less of an option now.
Actually, in my experience kids cost a lot MORE than the USDA estimates. You've only had a child for 3 months, just wait.
Posted by: KH | December 15, 2011 at 06:11 AM
I hoard my money in savings and investments so that hopefully some day I am able to retire. I don't think that is being too selfish.
Posted by: Karen | December 15, 2011 at 07:13 AM
KH: I appreciate the advice to wait and see. I think where you live has a huge effect on your expenses.
The USDA estimates for the Southeast for her first year is still higher than most people I've spoken to on the topic.
Posted by: Elle | December 15, 2011 at 07:17 AM
I always dislike it when people downplay the role of money. It is not a tool or a mere tool, it is the gateway to freedom in a democratic capitalist society. Other than that I agree in large part to everything else in this insightful piece.
Posted by: Luis | December 15, 2011 at 08:40 AM
Why does the USDA use our tax dollars to put up junk like this on a website? This "information" is not particularly beneficial. (Sorry, I'm on a campaign to cut the vast excesses of the federal government)
Posted by: Paul | December 15, 2011 at 08:57 AM
Don't apologize, the USA needs to trim the fat in order to get healthy again. Websites like this one already serves the need of the public.
Posted by: Luis | December 15, 2011 at 09:59 AM
I support your thoughts about delaying college funding. You can't get a loan for your retirement, so don't sacrifice your comfort in retirement to save for college. If people are asking what to give as gifts to your little one, encourage them to buy savings bonds. I buy bonds for my 5 nieces for every birthday & Christmas. They don't notice one less "real" gift under the tree and they will thank you for it later!
Posted by: The Frugallery | December 15, 2011 at 10:20 AM
PERFECT LINE
"Will we get this right on the first try? No"
Just want to give props where due. This statement is true in so many areas: Parenting, finance, cooking, heck, even walking...
The important thing is that we keep learning and we help each other learn.
Nice article.
Posted by: Catherine | December 15, 2011 at 11:55 AM
Lookign at the USDA Calculator - don't forget that in those estimates they include housing, which includes furniture, utilities, etc... They seem low on healthcare for me. The difference between a spouse plan and a family plan on my healthcare (jsut what i pay, not including my employer's payments) is 1357 annually. And that includes $200 deductibles per person, copays for office visits, etc... I jsut had my second child this year, and made the mistake of choosing the "middle" healthcare plan instead of the premium one, and am so far out of pocket over $5000 due to the expense of having a child, which woudl all fall under that first year expense.
As for advice? Don't say no when people try and give you stuff! You may end up with 10 of the same thing, but you can pick the one that you like best and give the rest away. So many people turn up their noses at hand-me-downs (toys and clothes) but babies wear their clothes for 2 or 3 months tops, and even toddlers are only wearing their clothes for one season (maybe 4 months tops?).
We recently "inherited" a full backyard playground for free from someone at our son's school that would easily have added up to over $1000 worth of playground equipment.
Posted by: Sarah | December 15, 2011 at 12:15 PM
I agree that contributions to a 529 plan shouldn't be at the expense of contributions to your retirement accounts, but most people would not miss a small automatic contribution of $50/mth, and even that small amount compounds and adds up over 18 years. I was so lucky to have my undergrad/post-grad education paid for and it has put me so far ahead in terms of growing my net worth. At my firm many of my peers hate their job and are here only long enough to pay off loans - I have a much happier outlook knowing I go to work everyday because I want to.
Posted by: B | December 16, 2011 at 01:18 PM