You sent us your money questions, and we asked Michelle Singletary, The Washington Post’s award-winning personal-finance columnist, to share her answers. Below you will find the third of a five-part series of Q&As; check back each week for the next installment.
Q: My partner and I want to have a baby. How should we approach budgeting for an extra member of our family in this economic climate?
A: Budgeting for a baby can be challenging.
Costs will vary greatly based on many factors: where you live, how much health insurance coverage you have, potential child care needs, and of course, your lifestyle.
But can I be candid?
I hope that before you start a family, you make sure your finances are in order. I’m not saying you shouldn’t have a baby if you’re bad at budgeting, but if you’re overwhelmed already with debt or you have little in savings — or both — adding the expense of a child to the mix can be stressful even for people in the best relationships.
Do your best to get your financial house in order before adding a child. Pay off as much debt as possible, boost your savings if it’s anemic, and assess whether you’re on track for retirement.
Bankrate.com found in a recent survey that 39 percent of Americans didn’t have the savings to cover a $1,000 in unexpected expenses such as a car repair or emergency room bill. Another 38 percent said they would have to borrow the money, while 18 percent of Americans would have to put the expense on their credit card.
“American households’ generally low level of emergency savings is troubling,” according to the Pew report. “Most have far less in reserve than the three to six months’ worth of expenses or income that financial experts recommend. This vulnerability affects households of all types and at all income levels.”
My husband and I were very grateful we were good savers because when I became pregnant with our first child, I had a major health crisis requiring a lengthy hospital stay. I had to go on bed rest for the entire pregnancy. We had great medical insurance, so we had very little out-of-pocket expenses. Had we not, we might still be paying for that kid, who will turn 26 in a few months.
Thankfully, my employer allowed me to work from home. Even after the baby was born, I ended up telecommuting for another six months to recover and spend time with my newborn.
If you don’t have a job in which you can telecommute or take off a lot of time this means you need to be sure you have adequate savings to carry you through should you have a difficult pregnancy. You certainly should hope for the best, but prepare for the worst, too.
If you’re confident that your finances are good, start the planning for the baby by assessing your health insurance. Even if you have medical insurance, the out-of-pocket costs can be significant.
Looking at data in 35 states from 2016 and 2017, the average childbirth admission for individuals with employer-sponsored insurance was $13,811, according to the Health Care Cost Institute, a nonprofit funded by the insurance industry. Average out-of-pocket spending ranged from $1,077 in D.C. to $2,473 in South Carolina.
Be sure you’re clear on what kind of coverage you have, including any co-payments, deductibles, prenatal care, etc.
The one key piece of advice I always tell prospective parents is to practice paying the cost of a child. By this, I mean create a baby budget. The biggest potential expense will be child care. Check out the prices in your area for an infant. Then see if you can handle the cost.
Care.com has a care index that you might find helpful to give you an idea of this expense, which varies greatly by where you live. For example, the national average for child care at a center is $9,589 a year. But in California, the average cost is $11,479. In West Virginia, it’s $6,787. If you want in-home child care, the national average is $28,354 a year.
Divide the yearly average for your area and start to put that money away for a few months. See how having to pay that expense impacts your budget. You may realize you need to do some heavy cost-cutting to afford child care.
If you practice paying for daycare before you have the baby arrives it could give you some financial breathing room once you have the child because you’ll already have at least nine months of child care saved.
I know this is all a lot -- and I didn’t even discuss saving for college.
You might think you will never have enough money. But if you create a realistic budget — food, medical costs, child care — you can experience the priceless joy of parenthood.