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Kids are costly. You’ve got to be ready.
Being a good parent not only takes a lot of love and patience, it requires a lot of savvy financial planning.
According to the U.S. Department of Agriculture, it will cost the average American middle-class family more than $220,000 to raise a child to age 18.
Then there's college. And you know what those bills are like.
Everything from the balance on your credit cards to the insurance coverage you select will go a long way toward determining the kind of life they'll lead from childhood until they're young adults.
Our 6 smart moves to financially prepare for parenthood can help you make many of the right decisions.
Smart move 1. Start saving for the delivery.
Get off on the right foot by having the cost of having your baby covered before you ever reach the hospital.
Depending on your insurance, deductibles for labor and delivery typically run $1,000 to $3,000.
But out-of-pocket costs can quickly rise to $15,000 or more if you encounter complications that require a C-section or a premature birth that lands your infant in neonatal intensive care.
If your doctor says you have a high-risk pregnancy, set more money aside for the bills, because there's a much greater chance of having a high-cost delivery.
Smart move 2. Go over your health insurance and prepare for premium increases.
In most states, your child will be automatically covered under your insurance policy for 30 days. After that, you have to officially add them or they won't be covered.
Lots of things can go wrong with newborns, so we shouldn't have to tell you that health insurance is a must.
Adding your child to your health insurance policy can be a big sticker shock for many new parents. The cost all depends on what kind of benefits your company offers.
If you work at a Fortune 500 company, it may not cost that much.
But for many smaller businesses, it's not uncommon for you to have to cover 100% of the premiums for dependents.
Rising health care costs and premiums over the past decade have forced some to make drastic cutbacks. Many have started by not covering premiums for dependents.
So, while you may only be paying 30% of the premiums for yourself, you'll have to foot the entire premium for your baby.
Depending on your plan, this can be big, perhaps $130 or more per month.
Don't be hit by the sticker shock. Prepare for it now.
Smart move 3. Get rid of your credit card debt.
Taking on the expense of raising a child when you're already carrying big balances on your credit cards will make your financial life exponentially more difficult.
You need to pay off, or at least reduce, that debt before the baby is born.
Consider moving all of your debt to the card with the lowest interest rate or even transferring your balances to a new card that charges 0% interest for 12 months or more.
Our credit card calculators can help you develop a plan to pay off one card or a whole bunch of credit cards.
Smart move 4. Get a budget.
When you were single or just living as a couple, it may have been easy to wing it when finances got tight. You cut out a few weekend splurges, ate in more and hung on until things loosened up.
Now that you're going to be a parent, the costs are going to add up quickly.
You won't be able to manage it all if you can't keep a close eye on where your money is going. There's no better way to keep track of your money than by creating and sticking to a budget.
It doesn't matter how much you make, you're going to have an astounding number of new expenses, from diapers and formula to day care and baby clothes.
If you don't figure out how much you can afford to spend on all of that, you can quickly wind up fighting over money and carrying big balances on your credit cards.
Our budget calculator makes the process surprisingly quick and painless.
Smart move 5. Insure your income if you're sick or injured...
Disability insurance provides the money you need to keep up with mortgage payments and grocery bills should you or your spouse become too ill or hurt to work.
Many companies provide such coverage as part of their benefits package.
Check with your employer to see how long you must be out of work before the payments begin, what percentage of your income you'll receive and how long the payments will last.
If you're not covered at work, you can buy disability policies from most insurance agents.
Premiums should run about 1% to 3% of your annual salary. So, if you make $40,000 a year, you should be able to get a policy for about $400 to $1,200 per year.
Short-term policies usually begin payments seven to 14 days after you've been out of work and continue to pay benefits for up to three months.
Long-term policies require you to wait at least six months before payments begin, but if you're permanently disabled, benefits can continue until you turn 65 years old.
How much you'll receive is typically between 60% and 80% of your income.
You're still going to take a hit, but the insurance will at least cushion the blow.
Smart move 6. ...Or, heaven forbid, die.
The good thing about life insurance is that the younger you get it and the longer the term, the cheaper it is. It's often so cheap that you'd be foolish not to get a policy.
A common rule of thumb says you should get a policy worth at least six times your annual gross income. So, if you make $40,000 a year, you should look for a $240,000 policy.
A 30-year-old nonsmoker should be able to buy a $250,000, 20-year term life policy for about $200 a year, and the premium is locked in. It won't change as you get older.
One important note: Disregard sales pitches for whole life policies that are sold as investments. There are much more lucrative ways to save. Insist on a much cheaper term policy.
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