RelayRides blogger and financial expert Amanda L. Grossman shares five financial changes every parent should make.
Will Smith once jokingly remarked to Oprah that when you purchase a new vehicle you get a huge owner’s manual for how to operate it, but when you go to a hospital and have a baby, they just hand them to you and send you on your way.
All jokes aside, the fact is, there are no owner manuals for your new child. Instead are about a billion different opinions on how you should ready yourself for one and how you should raise one. Why is that? Because there are about a billion different ways to both prepare for and to raise a child, all of which have worked in their own right.
I’m not here to add to your list of advice on how to raise your child. Instead, I’d like to talk about five financial changes that you need to make either to prepare for your new blessing, or to help smooth things along.
Have the Daycare Cost Vs. Job Discussion
If both you and your partner are working, then at some point you will need to figure out whether or not to put your child into some sort of daycare at the end of maternity leave, or whether or not to stay home to raise your child. This is a discussion that involves many factors outside of the scope of this article. However, one thing that you will need to do from a financial perspective is to calculate the cost consequences of each outcome. Do some calculations so that you are able to answer the following questions: How much will you sacrifice in terms of income in order to be a stay-at-home-mom or dad? Can you pay your bills on one income alone plus save for the future? How much will daycare costs versus the income you will bring home by working full-time/part-time?
Take the time to figure out the hard, cold numbers so that they become part of your decision making process.
Health Insurance is No Longer an Option
The fact is, even with Obamacare, healthcare is still a yes or no question for people (and plenty of Americans are choosing to opt-out of it). But it’s different with a child. You have much less control over their health, things can pop up out of nowhere, and there are various needs within their growth and development from a healthcare perspective. It is much safer and more responsible to just assume that health insurance is not an option when you have a little one. It is just something that you must have, whether through a private plan or a public one.
Emergency Funds are Your New Best Friend
Perhaps you have already taken the time to save up an emergency fund (aka the buffer between you and life). But if you haven’t, now is a very good time to do so. You may not think that you can afford to save up 6-8 months worth of living expenses. The real question you should be asking yourself is, can your family afford not to?
Calculate your monthly bills, and then multiply that by a comfortable buffer (6 months is a good start…3 if that number makes you feel squeamish). This is your target amount of savings to stash away into an emergency fund.
Utilize Underused Resources
The time and money you enjoyed in pre-baby days have probably become two scarce resources in your household. It won’t be like this forever, but for right now it’s where you are. Take the time to utilize the underused resources in your life to make up for the time and money gap you are feeling. This could include things like renting out your idle vehicle for some extra cash through RelayRides, renting out spare rooms in your house via marketplaces like Airbnb and creating a ring of neighborhood moms so that you can each take turns babysitting for one another once a month.
Also keep in mind the favors offered by others that you haven’t used yet. Now might be a good time!
Adopt a More Long-Term Mentality
You can continue to live paycheck to paycheck, or to not save for retirement, or to do any of the other short-term financial actions that many people do. But thinking in a longer-term way will help you tremendously now that you’ve got a family. For example, at what age do you want to retire, and will this coincide with your child’s college education? Instead of just winging it without much savings, now is a great time to take a machete to your monthly spending and open up some breathing room for an emergency fund and retirement savings. And it’s never too soon to start thinking about contributing a small amount each month to a college fund. Hey, they grow up fast, right?