How to Prepare Financially for a New Baby

Almost a quarter million dollars. That’s the new price tag on raising a child from birth to age 17, according to a new report by economists at the U.S. Department of Agriculture. More specifically, $233,610 is the estimate (in 2015 dollars) for a child born in 2015 to a middle-income, married-couple family. Did you just forget to breathe? Close your eyes, breathe in and out, and remember: “There’s so many variables in your bottom line,” says Susan Beacham, CEO of Money Savvy Generation, so don’t try to swallow the idea of that cost all at once. Once again, the best defense is a good offense, says financial planner Sheryl Garrett, founder of Garrett Planning Network. Here are a few steps to take:

Have a conversation.

If you’re raising the child with a partner, talk about the aspects of your life now that you want to change — and the ones you’d like to keep — after the baby is born. The questions you ask yourself or your partner and the answers to those questions will be different for everyone, of course. But they unlock important information. Does either of you want to spend more time at home? Do you both want to keep working? If yes, can you afford to pay for childcare? “There might be some surprises in that conversation,” says Beacham.

Compare your benefits packages.

When you’re making the decision about whether one or both of you will work, it’s also important to compare your benefits packages — choose which one is stronger and will provide better coverage for the baby. (And once the baby is born, make sure you update your insurance to include the baby within 30 days of birth, as policy rules generally state.) It’s also important that you schedule out time to spend with each other to “keep dating.” Whether it’s once a week (starting a few months after the baby is born), or once a month, make a plan to make sure you keep devoting time to your relationship.

Prepare for surprises.

It’s not a question anyone likes to think about, but it’s one everyone should. If something were to happen to you, who would raise your child? Write a will, and do it before the child is born. State laws lay out what happens to kids if something should happen to their parent(s), but writing your own now enables you to name guardians. Online resources like WillMaker ($55 through Nolo.com) or LegalZoom.com (DIY wills starting at $69) are good resources. If you have a more complicated financial life, hire a lawyer — or an estate-planning attorney, to make one for you starting at about $500. You also want to look at life insurance, because having dependents in the near future means it’s your responsibility to provide a safety net. In general, a 20-year level term insurance policy is a good bet. It pays out if you die, but there aren’t a lot of other fancy variables attached. To figure out how much you need, I have a free life insurance calculator on my website. But if you choose to ballpark it, buy eight times your current income.

Get to work on that emergency fund.

Nearly six in 10 Americans don’t have enough savings to cover a $500 or $1,000 emergency, according to a new report from Bankrate. If that hits close to home, building an emergency cushion should be a top priority before the baby comes. Use an app like Digit, which tracks your spending and secretly socks away money you won’t miss, in combination with automatic savings from every paycheck (if you can’t see it or touch it, you won’t spend it).