The Reproduction Equation: X + Y = Oh Boy!
March 24, 2010
Our friends and family will tell you that we have been known to overanalyze everything. Since we prefer to plan for things—especially those large in scope—before we start executing a new plan, it can take us a while to set all the variables in place for a favorable result. So as you can image, planning for children has been a long process for us. To the chagrin of our parents, we kept dragging our feet before having a baby because we wanted to try to figure out how much is enough cushion to have on hand before expanding the family. What do you need in place financially and emotionally to be prepared for this giant step? When do you know you are really ready to have children? These are questions that have kept us up at night and kept us from taking the plunge into parenthood.
Everyone has a different opinion about these questions and a lot of times people tell us that there aren’t any “right” answers. Larissa’s Grandpa Bill has a pretty liberal outlook on kids and we always chuckle when we remember what he told us early in our marriage when we said we weren’t ready to have kids yet. Grandpa responded so matter-of-factly in his Oklahoma accent, “Whatcha waiting for? Nothing’s gonna change!”
Even though it is difficult to argue with Grandpa’s statement, we keep going back to conservatively approaching planning when we think about the statistics we’ve read on the cost of having kids. For instance, the USDA Center for Nutrition Policy and Promotion reports that a middle-income family with a child born in the year 2000 will spend about $165,630 to raise that child for seventeen years. And that figure is for just one child! When we start doubling and tripling it, it gives us a headache and has served as effective birth control for quite a few years.
What we soon came to realize is that whether you’re having your first child or your third, being pregnant for nine months affords more than simply giving your baby enough time to fully develop its hands, toes, head, organs and the karate-chop kick it likes to execute on the inside of its mother’s belly during the third trimester. Nine months of being pregnant also gives couples time to mentally, physically, and financially prepare for one of the biggest and most life-changing elements of their relationship and their lives. So whether you only have the nine months before the baby is delivered to prepare or if you find yourself with more time to plan for your baby, it is important to take the following five factors into consideration.
Think Beyond the Baby Shower
We’ve all heard parents-to-be naively say they don’t have to worry about buying clothes or furniture for their babies because they are going to get everything they need at their baby shower, as well as multiple gifts from grandparents and other close family and friends. Even though it’s true that family and friends are good resources for parents-to-be, couples have to think beyond the fantasy period of having a child (three days for some, three months for others—it just depends on how much sleep the parents are able to get) and plan for at least the first full eighteen years.
Parents we have talked to estimate that monthly, they spend about $100 on diapers and $100 on formula when their kids are babies. After the kids are potty-trained and past the formula stage, though, these costs do not just disappear. Instead, they transferred over to other expenses that arose as kids grow, such as baby food, videos, books, and more. Based on our experience and the experience of other parents we’ve talked to, just as you have to plan for the initial start-up costs associated with having a baby, you also must consider the ongoing costs that might shift, but don’t decrease.
Save Like You’ve Never Saved Before
There isn’t a universal rule for how much is enough to save to be fully prepared for the birth of a child. Even with all of our pre-planning, we didn’t know ho much we needed to save, so we just saved as much as we could. As soon as we became pregnant (truthfully, as soon as we started discussing the possibility—about a year prior to conceiving—because we are savings freaks), we went into major savings mode. Any extra money remaining after we’d paid the bills and set aside a moderate amount for other spending went right into our savings account. We deemed it, “Project Baby Savings!”
The importance for growing your savings is so great when you are planning on having a baby, not only because your regular living expenses are going to dramatically increase, but also because you never know what huge expenses will pop up along the way. From emergency room trips when your toddler bumps his head on a coffee table to mishaps during extracurricular activities, kids are expensive little boogers. Similarly, it’s more important than ever to have a savings cushion so you’ll have something to fall back on in the unfortunate event that something happens to your job. Layoffs and closures are a fact of life, so it’s good to be prepared. With a child in the picture, you not only have to take care of yourself, but you are responsible for the consistent well being of your child.
To that end, our rule of thumb is to aim for accruing three months worth of paychecks in savings by the time you have your baby. At first, three months’ worth of savings may seem like a long shot, but when you break it down into smaller pieces, you’ll see it is attainable. Let’s say that you bring home $2,500 a month as disposable income. To have three months’ worth of savings, you would need $7,500 in the bank by the time you have your child to meet our rule of thumb savings goal. If you take $7,500 and divide it by the nine months you will be pregnant, that equates to saving $834 per month, or $417 a paycheck. This, of course, assumes that you don’t have any money in savings to start out with. If you do have even a little bit of money set aside for a rainy day, then you won’t need to save as much each month. If you aren’t able to make the three-month cushion by the time your bubbly, happy newborn enters the world, don’t fret. Just try to get as close as possible to the three-month cushion as you can. Even if you don’t make the overall goal, the exercise is a good start for conditioning you to begin and continue saving for all of your children’s lifelong experiences.
Stay tuned for the next blog where we will continue the conversation on financially preparing for our bundles of joy by talking about the dreaded cost of day care, health insurance and education – fun stuff!
Happy Saving!
