Budgeting for a baby takes planning, experts say
Golden residents Laurel and Max Delmonico seem unusually prepared, much to the benefit of their 4-month-old son, also Max.
“The immediate cost that we were concerned about was delivery,” Laurel says. “We were planning for that a year or so before he was even conceived.”
Huge life changes call for commensurate planning, especially when they come with the cost of raising a child. If you seek it out in books or on websites, you might find that cost to be estimated at somewhere between $250,000 and $1 million, depending on where you live, your current lifestyle and income — and how much of your child’s college tuition you’d like to pay.
For most people, planning for a family will require the same basics as planning for anything, says Amy Fidelis, education director at the Lakewood-based financial coaching nonprofit mpowered.
“Know where you’re spending your money,” she says. “Stop me if this sounds really obvious, but unfortunately this is the stuff we’re not doing.”
With some basic budgeting in place, it’s easier to make decisions like how much leave to take from work, if any. Fidelis breaks decisions like that down into three basic steps.
First, she advises that families understand their current financial situation, like how much they’ve got in debt and savings.
Second, identify a goal. Maybe a family of two expecting a child would like to find a way for both parents to be at home for a full month.
Third, determine what that would cost and what rearrangements would have to be made to meet the goal. You might find that in order to take time off work — which is often unpaid — your savings won’t cut it. Maybe you have to trim $1,000 in spending somewhere else in the year. If the rearrangements are out of the question, re-evaluate — maybe two weeks is more realistic. Try those numbers.
The process works for many of the financial decisions families find themselves facing.
“I find a lot of families thinking, ‘We need a car that’s better, safer or bigger,’ ” Fidelis says. “A, is that a legitimate need or a want — and B, what are you going to have to rearrange to do that?”
It works especially well if families think things through early on, like the Delmonicos have done.
They hope eventually to be able to put away $200 per month to help Max (and any future children) pay for out-of-state or private tuition. They’re using a 529 plan, which provides tax incentives for savings that ultimately will be used specifically for post-high school education costs.
“We opened a 529 as soon as we got his Social Security number, and we’re just putting in $20 or whatever we can (each month) right now,” Laurel says. “The advice that we’ve been given and that I’ve sort of bought into is that you have to save for your retirement first.”
That’s the advice CPA Craig Arfsten gives his clients at Prosperion Financial Advisors: Provide for your family, but don’t forget about your own very real and ever-closer needs.
“With any kind of savings, it’s not a game of catch-up. You can’t wake up at age 50 and say, ‘OK, now I am going to save for retirement.’ The numbers are unattainable.”
He says that even if it’s counter to parenting instincts, it’s crucial for parents to “pay themselves” first.
“I’ll see parents spending tons of money for their kids’ college expenses and yet they’ve totally forgotten their own retirement,” he says. “They don’t have time to recoup.”
The father of two children —who are now 19 and 22 — says simple planning is the key. You already know whether you think your kids will go to college and when that would happen, he says, and you can easily estimate what that will cost with the help of websites like collegesavings.org. You already know that there will be medical costs like braces and other cost like sports equipment and fees — and that you have to retire. Sure, there’s some guesswork.
“Are you ever ready financially to have a kid and know exactly what you’re getting into? No, probably not,” says Arfsten.
But that’s not a free pass to pretend you don’t know a lot of the big-ticket items in advance.
Dave Burdick: 303-954-1957, email@example.com
Save the date
In addition to working for financial coaching nonprofit mpowered, Amy Fidelis is on the steering committee for Money Smart Colorado week, which takes place April 20-27. During the week, businesses, nonprofits and other organizations provide consumers with free financial education. Watch moneysmartcolorado.org for a calendar of events as the week approaches.