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Expenses are a big factor in having kids

Tue., June 8, 2010

Becoming a parent is a magical milestone for many couples that begins a path of learning and new adventures. There is little instruction as to how to prepare to be a good parent, although it’s likely the most important role those with children play in life.

Too often couples don’t give much thought to the financial impact of parenthood. Here are some implications worth considering when planning a family:

Loss of income: How are you going to handle a loss of income before, during and after maternity leave? Do you have any vacation time or paid time off that you could add to your maternity leave to help with the reduction in income? Do you have disability income coverage – short- and long-term? What are the plan provisions for maternity?

Many times policies will cover complications from child birth but exclude normal pregnancy. If your situation is covered, how much financial benefit might you receive? What is the waiting period on the policy – the time before payments begin? Once your benefits begin, how long will they last? Many contracts automatically allow for a set amount of benefits for certain complications.

Many couples will have one partner stay home after the birth of a child. If that’s what you want, it is a good idea to live off one income long before the baby arrives so you can be aware of the spending changes you need to make.

Health insurance: How does your health insurance cover maternity services and complications? What will be your deductible, and what will be your coinsurance – the percentage of covered costs you pay after the deductible has been paid – for the doctor care and hospital stay? It makes sense to have this money saved before the baby comes and still have your emergency fund intact.

New baby needs: As a new parent, have you priced diapers and formula? Those items are surprisingly expensive, and your baby will, most likely, use more than you anticipate. Those baby outfits are so cute, but your baby will outgrow the smaller sizes before you know it. If you get too many of the small sizes at a baby shower, consider exchanging the tiny outfits for larger sizes.

Day care: This expense can, many times, be the largest cost to a two-income family. Know your options and decide on your game plan ahead of time. Are you going to use a day care? Are you going to hire a nanny? If someone is coming into your home to work, talk to your accountant about required paperwork and additional expenses associated with having a household employee.

Future education: Do you feel strongly about helping your child with his or her college education? Setting aside savings while your children are young will ease the burden of this need. There are different options for putting money aside for this, such as 529 plans and UTMA accounts.

Starting a family is the beginning of a new stage in a life of responsibilities, and taking the time to anticipate the financial impact of these changes will help the ride be smoother. Speaking from personal experience, it is worth every penny.

Sarah Rieger is a certified financial planner and member of the local Financial Planning Association chapter. Readers are invited to submit questions on financial planning to be answered in this space each Tuesday. Send questions to

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