financially ready

How Do You Know If You Are Financially Ready For A Baby?

“What is the right time to have a baby?” “Is it financially possible for us?” These are common questions that many couples ask themselves. However, there are some things you can do before having children to prepare your finances and answer these questions.

If you consider starting a family soon, you probably have many questions regarding whether you and your spouse are ready. It is only fair, considering the level of care and commitment required to be not only a parent but a good one.

One of the biggest concerns shared by parents-to-be is whether they are financially prepared. 

Raising a child comes with its fair share of expenses, so it is wise to consider your financial situation before deciding.

Signs You’re Financially Ready for a Baby

While there is no one-size-fits-all answer and you might never feel truly prepared. But if starting a family is essential to you, you want to be in the best financial position you can. 

Here are some signs that could indicate you are financially ready for a family.

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You Have A Clear Financial Plan

Having a clear vision of where you would like to be in the future is extremely important. And though things rarely go exactly as planned, it is still essential to put a plan in place. 

Planning for your retirement and setting precise investing and savings goals is crucial.

Your financial plan should include things like a college fund, sports, music lessons, and all of the other things you want to expose your kids to. 

Will one parent stay at home for a while? How many children are you planning to have? Do you have aging parents that you may have to assist in the future?

You’ll also want to set aside money specifically for “kid stuff” such as babyproofing the house, child care, tutoring, equipment for extracurricular activities, and the list goes on. 

The cost of having kids is never-ending, so that must be accounted for in your overall financial plan.

You Stick To A Budget

A financial plan establishes the ultimate destination, whereas a budget acts as a GPS and governs the day-to-day details. 

If you struggle with budgeting, you may want to hold off on starting a family until you master the habit. 

Kids can throw your finances entirely out of whack, and if you don’t live by a budget, you can quickly find yourself drowning in debt and unable to save for retirement or your children’s future. 

You Have Decent Health Care

If you are considering starting a family, decent health care is a must. When you have a child, you become responsible for their health and wellbeing. 

And while health care is expensive, you have to value the physical and emotional wellbeing of your family over having nice things.

Take a look at your current health care policy to see what adjustments you need to make. 

Your plan should change as your family changes. For example, when your kids are babies, it’s best to have a comprehensive plan to cover the “what-ifs.” 

New parents need to take a baby to the doctor whenever they sense something isn’t right. 

Some of those trips may result in the doctor simply reassuring them that the baby is fine, but that peace of mind is priceless. 

Saving Is One Of Your Top Financial Priorities

To provide stability for your family and your future, saving money has to be one of your top priorities. 

Savings — emergency, rainy day, retirement, and college funds — are your source of security when life gets unpredictable. 

At the very least, an emergency fund with six months to a year’s worth of living expenses can protect your family from an unexpected expense or job loss. 

Before you add kids to the mix, work toward saving at least that much. 

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You Have Little Debt

If you have (and value having) little to no debt, this is a sign that you are financially ready to expand your family. Kids are expensive and full of hidden financial surprises. They grow faster than expected and come with gifts and talents that need nurturing. And nurturing comes with a hefty price tag.

It would help if you aggressively eliminated as much debt as possible before you grow your family. 

This means getting rid of student loans and paying off credit card debt as much as you can. 

It is impossible to anticipate every expense you will have with kids. Still, you’ll want to free up as much money as possible so you can provide your family with appropriate health care, child care, and education options.

You Know How To Live Frugally

Having a family is a sacrificial endeavour. Before you have children, you must come to grips with the fact that you can’t have it all and do it all. 

The ability to stretch a dollar and pinch pennies in tight times is a necessity. However, you have to know when and how to cut costs to ensure you can provide for your family long-term.

Start looking for ways to cut costs before your children come. Visit the dollar store, start thrifting, and embrace the DIY lifestyle. 

Figure out a system of meal prepping that will save you both time and money. 

What skills and abilities do you already have that can translate into savings? For example, can you cut your child’s hair, alter their clothes, or tutor them yourself in math? 

Evaluate what you already have and figure out how to put it to use.

You View Family As An Investment

The last sign that you are ready for kids directly relates to your perception of family. 

As a parent, viewing your kids as an investment will help you make solid financial decisions that yield high returns. 

You must analyse your financial decisions and make each one count. Maybe instead of buying your kids the newest sneakers, you’ll get them a tutor. 

Instead of purchasing the latest gaming system, you’ll invest in music lessons or science camps.

Investing in your kids sets them up to win in life. This means saying “no” to indulging their every whim. 

There’s nothing wrong with buying your kids designer clothes, of course — but you must ask yourself, is that a good investment and the best use of those funds?

Growing your family can be one of the most rewarding decisions you’ll ever make. But it certainly comes at a cost. 

Going down a financial readiness “checklist” is an intelligent guideline that can help set you — and your future kids — up for a prosperous and financially stable life.

You Have Savings Or An Emergency Fund

It is no secret life. It is unpredictable. Unexpected medical bills, car or home damage or changes at work can occur at any time. 

When you add a newborn into the equation, any sudden expense becomes a lot more complicated. Therefore, being prepared for such occasions will pay dividends.

It is not just emergencies you should prepare for – though Washington has generous maternity leave policies, not all states do. 

If you or your spouse become unemployed while taking care of a newborn, setting money aside to cover several months of daycare, bills and baby supplies will come in handy.

Your Career Is Stable

Your career is your primary source of income, so you must be able to count on it to provide for your new family and build your savings. 

While you cannot predict what will happen in the future, you should feel somewhat secure in your current position or ability to find gainful employment should you lose your current job before committing to a family.

To determine the stability of your career, ask yourself these three questions:

  • Am I making ends meet?
  • Can I anticipate my career being the same in a year?
  • Could I find a similar position quickly if I lose this job?

You Have Healthcare

Paying for a quality health insurance plan is essential, especially with a family. As a parent, your child’s wellbeing is your responsibility. 

If they get sick or hurt, you will have to pay for doctor and emergency room visits, which according to one study, cost more than $1,200 on average.

If you already have health care, explore the adjustments you need to make to include a little one. 

Expanding your plan’s coverage will likely increase your premiums, but the peace of mind that your child’s health is taken care of is well worth the price. 

Plus, it will be far cheaper than not being prepared in an emergency.

You Know How To Budget And Live Frugally

Raising a child involves making sacrifices – primarily involving your finances. 

Diapers, clothing, child care, toys and food add up very quickly and covering them all will require good budgeting skills. 

If you do not already practise good budgeting habits, you may find it challenging to adapt to the costs of having a child.

It is also essential to embrace living frugally if you have not already. 

You should be comfortable with thrift shopping, accepting hand-me-downs from friends and family and finding other ways to reduce everyday expenses if the need arises.

You Have Your Debt Under Control

Many people assume they need to be debt-free to afford to start a family. 

But when you consider the average American household carries more than $100,000 in debt, this may not be feasible – by the time your debt is paid off, it may be too late!

Focus on getting it under control instead of eliminating it. 

Make payments on time, pay with cash when possible and work with a financial adviser if necessary. 

Also, remember not all debt is equal. 

You’ll likely want to buy a house in which to raise your family, and the vast majority of first-time homebuyers will need to acquire a mortgage to do so. 

That doesn’t make those people irresponsible or necessarily financially unstable. A mortgage with a reasonable interest rate is vastly different from having excessive credit card debt with double-digit interest.

Key Factors to Consider 

Following are the factors to consider to help you feel more comfortable about leaping parenthood:

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Income. 

There’s no magic number that means you’re ready for a baby, but you should look at your budget to see if your income can handle added baby costs like food, diapers, medical care, and clothing. 

Is your career stable? If you don’t feel comfortable with your company, role, salary, or benefits, now is the time to make a change before a new family member arrives.

Savings. 

With monthly expenses going up on things like childcare, diapers, food, and healthcare, your ability to put money into savings will likely take a hit. 

Are you still able to put a chunk of money away each month to grow your emergency fund, down payment savings, or a nest egg? Can you swing extra protection for your children’s future college educations?

Retirement. 

It might seem like retirement savings falls into the category of “savings,” but retirement savings serve a different purpose. 

This is money you’ll need to live on when you’re no longer earning a salary. Are you setting aside money each month in a retirement fund, such as an IRA or Roth IRA? 

Because of compounding interest, the younger you start saving for retirement, the more time your money has to grow, even with small deposits.

Revolving Debt. 

It can be easy to overlook credit card debt because minimum payments can be pretty low each month. 

The cost you need to look at, though, is the amount of interest you’re paying. How much money are you losing each month to interest? How much does that add up to every year? 

Paying down debt and paying it off entirely can help you save hundreds per year. This is money that’s freed up to help you start your family.

Other Debt. 

Student loans are a crushing weight on millions of young people looking to start families. 

Are your student loans under control? If the interest rates are relatively high, it may be worth speaking to someone about refinancing and consolidating them. 

Bringing those monthly costs down will help offset some of the new baby expenses you’ll be adding.

Discretionary Income. 

Along with these other changes to your monthly budget come changes to your discretionary spending. 

You’re probably comfortable with the thought that more money will be going toward purchases for the baby like diapers, food, and clothing, but have you come to terms with the fact that this also means you’ll have less to spend on hobbies, dining out, wardrobe updates, and entertainment? 

Not only that, but you’ll have to set aside funds for a caregiver for when you do set aside time for a date night. 

This can carry emotional weight with it, too, so make sure you’ve given yourself space to get used to this new normal.

If you’re comfortable with where your household stands on these six factors, then congratulations, you might be financially ready to grow your family!

Financial Tasks to Tackle When Preparing for a Baby

The list of things to do before the baby arrives and within their first several weeks is lengthy, so tackling specific tasks now is a brilliant idea.

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Pre-delivery Planning

Understand Your Health Insurance and Anticipate Costs. 

Having a baby is expensive, even when you have health insurance. Therefore, you should forecast your expected costs reasonably early in the pregnancy. 

Plan for Maternity/paternity leave. 

How much time you and your partner (if you have one) get off work and whether you’re paid during that period can significantly impact your household finances in the coming year. 

Understand your company’s policies and your state’s laws to get an accurate picture of how your maternity leave will affect your bottom line.

Draft Your Pre-Baby Budget. 

Once you know what you’ll be spending on out-of-pocket medical costs, understand how your income will be impacted in the coming months and have prepared a shopping list for your new addition, adjust your budget accordingly.

Babies come with plenty of expenses, so set a limit on both necessary and optional buys (like that designer diaper bag or high-end stroller with the LCD control panel), and consider buying used to keep spending under control.

Plan Your Post-Delivery Budget.

Recurring costs such as diapers, child care and extra food will change your household expenses for years to come. Plan for them now so you aren’t caught off guard.

Choose a Pediatrician Within Your Insurance Network. 

Your baby’s first doctor appointment will come within her first week of life, so you’ll want to have a physician picked out. 

Talk to friends and family to get recommendations, call around to local clinics and ask to interview a pediatrician before you make your choice. 

In searching for the right doctor, don’t forget to double-check that they are within your insurance network. 

Ask the clinic, but verify by calling your insurance company, so you’re not hit with unexpected out-of-network charges.

Start or Check Your Emergency Fund. 

If you don’t already have a “rainy day fund,” now’s the time to anticipate some emergencies. 

Kids are accident-prone, and with the cost of raising a child, there’s no telling if you’ll have the disposable income to pay for any unexpected expenses. 

Having at least three to six months’ worth of living expenses covered is a great place to start.

While In The Hospital

The main focus while you’re in the hospital is having a healthy baby. But there are a few loose ends that will need to be taken care of.

Order a Birth Certificate and Social Security Card. 

Hospital staffers should provide you with the necessary paperwork to get your new child’s Social Security number and birth certificate.

If they don’t, or if you have a home birth, contact your state’s office of vital records for the birth certificate and your local Social Security office to get a Social Security card.

Within Baby’s First 30 Days

Add Your Child to Your Health Insurance. 

In most cases, you have 30 days from your child’s birth date to add him to an existing health insurance policy. 

In some employer-based plans, you have 60 days. Regardless, do it sooner rather than later, as you don’t want to be caught with a sick baby and no coverage.

Consider a Life Insurance Policy on Your Child. 

No one expects the tragedy of losing a child, so many parents don’t plan for it. However, the rates are generally low because a child’s life insurance policy covers funeral costs and little else. 

When it comes to covering children, a “term” policy that lasts until they are self-sufficient is the most popular choice.

Begin Planning for Child Care. 

Finding the right daycare or nanny can take weeks. So get started long before your maternity leave is over. 

You’ll need time to visit daycare centres or interview nannies, as well as complete an application and approval process if required.

Beyond The First Month

You’ll be in this parenting role for years to come, so planning for the future is crucial. 

Estate planning is a big part of providing for your children, but it isn’t the only crucial forward-focused task to check off your list.

Adjust Your Beneficiaries. 

Assuming you already have life insurance for yourself or the primary breadwinner in your household — and if you don’t, you should — you may want to add your child as a beneficiary. 

The same goes for your 401(k) and IRAs. However, keep in mind that you’ll need to make adjustments elsewhere to ensure when and how your child will have access to the money. 

A will or trust can accomplish this.

Disability Insurance. 

You’re far more likely to need disability insurance than life insurance. 

Make sure you have the right amount of coverage — enough to meet your expenses if you’re out of work for several months. 

Remember, your monthly living expenses have gone up since the new addition.

Write or Adjust Your Will.

Tragic things happen, and you want to ensure your child is cared for if one or both parents die. 

Designate a guardian, so the courts don’t have to. Your will is only one part of estate planning, but it’s an excellent place to begin.

Keep Funding Your Retirement. 

When a child arrives, it’s easy to forget your personal goals and long-term plans in light of this enormous responsibility. 

Stay on top of your retirement plans, so your child doesn’t have to support you in old age.

Save for His or Her Education. 

College is costly, but you can make it more manageable by starting to save early.

Adding a new member to your family comes with a lengthy list of responsibilities, so don’t try to do them all at once. 

Prioritise and tackle the most critical items on your financial to-do list first. 

Because medical bills and insurance claims will be some of the first financial obligations you’ll encounter while expecting, start there. 

Move on to budgeting for pregnancy and the first several months of your baby’s life.

With 18 or more years until your little one leaves home, time would seem to be on your side. But — as the saying goes — blink, and he’s grown.

Now is the time to start taking the steps that will set your family up for financial success.

Conclusion

Ultimately, you have to weigh the factors that are most important to you. For example, perhaps you’re comfortable saving a little less each month to have a child sooner.

If you want to try to have multiple children, it may be more important to start your family while you’re younger. 

Maybe you’ve experienced some financial hardships and are worried about the uncertainties of making such a significant life change. 

You may also have additional expenses related to starting a family, such as adoption fees or infertility treatments.

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