How to Financially Prepare for a Family

When working with couples who are part of the Millennial or Gen Z generation, the topic of starting a family often comes up. For many, the idea of having kids has always been part of their long term life plans. Then, when the milestone starts to get closer, sticker shock starts to set in. 

It’s said that the average middle-income family spends anywhere from $20,000-$50,000 in a child’s first year just on their baby. This includes medical expenses, day care, diapers, formula or feeding equipment, clothes, nursery set up, car seats, a stroller, and countless other expenses that seem to add up quickly! 

While this number may feel intimidating, it’s important to know that you can make the decision to start a family from a place of financial empowerment. Follow these steps to start feeling more organized before you welcome your new bundle of joy home. 

Understand Medical Expenses

If you aren’t familiar with your current insurance plan, now is the time to do your research! You may even consider switching plans during open enrollment season if another insurance option suits your needs. Take a look at what your maximum out of pocket costs are, and what your deductible is. 

It’s wise to have at least this amount set aside in savings, or a specific Health Savings Account, earmarked for medical expenses in your baby's first year. It’s also smart to contact your insurance provider and ask questions about what’s covered (and what isn’t). For example, you may have coverage at certain hospitals, but other providers may be out of network, which could increase your out of pocket costs.

Map Out A Budget

Look at your current cash flow and spending habits without judgement. Are you generally comfortable in your day to day? Are there areas where you and your spouse or partner overspend? Now is the time to start making small corrective measures to get your finances in order. This might mean signing up for a service like You Need a Budget, or just tracking your spending for a few months to get clarity on what’s coming in and what’s going out. 

Then, consider what expenses you may have post-baby. These could be diapers, increased grocery spending when they transition to solid foods, daycare, child care for date nights, new clothes, and more. Even if you ballpark these numbers, or use one of the countless online calculators available to help you come up with estimates, this should give you a good idea of how your expenses might shift. 

Set Goals Wisely

Before children, setting financial goals may seem a little intimidating - but doable! Having kids throws a wrench into things. Even if you follow your budget to a T and successfully set aside enough money to pay for medical expenses right out of the gate, babies (and older children, too!) have a tendency to be unpredictable! Broken arms, unexpected childcare expenses, or even just a child who is blowing through clothes sizes rapidly, can all put a dent in your budget and your financial goals. 

So, to combat some of the unexpected expenses you’ll face, work on setting wise goals that are focused on moving the needle toward your ideal lifestyle. These can be:

  1. Fully funding an “emergency fund” with 3-6 months of living expenses.
  2. Working to pay cash for any new cars in your future to avoid taking on more debt, or financing with zero percent promotions.
  3. Paying off your student loans to free up additional cash flow.
  4. Setting aside funds for an annual family vacation as your child gets older to make memories. 
  5. Contributing to a 529 Plan - even if those contributions start out small. 

Know That You Can’t Fully Prepare

It goes without saying that, when it comes to starting a family, you can’t fully prepare for expenses. There truly isn’t a “perfect” time financially to have kids. Instead, focus on what you can control - an emergency fund, understanding expenses, creating a loose budget to use as a cash flow guide, and paying down debt. Using these items as a framework for financial success can help you when your little one requires you to be a bit more financially flexible! 

We’d love to help you create a financial plan that gives you peace of mind before starting your family. Get in touch with us today by clicking here!

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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