4 Signs You Are (Financially) Ready For Your First Kid
Having a child comes with abundant joy – and some unexpected costs. These 4 signs indicate that you are financially ready for the next step!
Published December 7, 2021
Reading Time: 7 minutes
Christy Matzen, CFP®
Director of Financial Planning at Zoe Financial
Starting your own family is a big, exciting step life step. Expanded responsibilities and commitments are part of it, but the decision to start a new family goes deeper than just the financial aspect of it. There are family dynamics, emotional readiness, and personal desires that play into the right time for you.
Regardless of the reasons you have babies on the brain, a critical step in making the final decision to have a child is earnestly evaluating your current financial situation. Here are four signs that your finances might be ready for welcoming your first child into the world:
1. You have a steady income
Not only is this an important sign, it’s also a must-have if having kids is on your radar. A stable income will ensure you are able to cover everything that has to do with preparing and growing your family. Consistent income will allow you to have certainty around expenses that will start to come with this new responsibility, and it will also allow you to plan financially. If your income isn’t predictable, it will be harder to cover the variable needs of your child, and will most likely bring an additional financial stress in your day to day.
The worst-case scenario would be to be in a situation where you have to choose between two necessities, like food or healthcare, because the income wasn’t able to stretch. If variable income is the nature of your profession, like real estate or sales, you might need to build a higher emergency fund to cover any obstacles.
2. You can control your expenses
What does your spending look like today? If every dollar you bring in is being spent on ‘needs’, you might need to work on some cash flow flexibility before adding to your family. Children are not free. Remember, a new family member means you need to cover the expenses of an additional person, and if your current cash flow is tight on covering your own, you need to re-adjust.
Having margin to save each month is crucial for the inevitable surprise expenses that will occur. Children require a lot of accessories that cost money, in addition to unconditional love and affection. As they mature and grow, the expenses they require will typically grow with them.
You are probably familiar with the big expenses, like childcare, car seats, and cribs, but what about the smaller ongoing expenses like food, clothing, and activities? It tends to be the little things that add up rather than the big items. Start with understanding your current expenses, separated between needs and wants, and then you can understand the margin that you have to allocate to a child.
3. You have an emergency fund
This is the first and most important step when it comes to financial security… And when it involves someone other than yourself, even more! You should have 3-6 months of expenses set aside for an unexpected emergency.
Pre-children this fund could be used for things like a flat tire, home repairs, or cover the loss of income. Post-children the list gets longer to include additional doctor visits, unexpected babysitting needs, and different bottles or swaddles
Having a child will increase your monthly expenses, so if you’re planning for security, you’re going to need to increase your monthly savings to account for the additional expenses.
4. You have health insurance/employee benefits
We’ve covered the fact that having a baby is expensive, but we haven’t gotten into the weeds of healthcare which is a big chunk of it. If your baby needs to visit the doctor, how will you pay for it? Do you have the coverage to do so? When it comes to having a child, there are hospital expenses, pediatrician bills, medical costs for the mom pre and postpartum, and the list goes on.
Health insurance will cover a lot of these bills and may even provide you with new parent resources, breastfeeding support, and doctor recommendations. After giving birth, there are baby check ups weekly, then monthly, then quarterly with pediatricians along with standard tests that health insurance can cover. Making sure you have health insurance that is able to cover yourself and your child is an important factor when you’re making the decision.
Additionally, consider reviewing your employee benefits. Employers have different kinds of benefits to help new parents. It’s important to understand what resources are available so you can create a plan when your bundle of joy is on the way.
Maternity and paternity leave are not always available, but a lot of companies offer paid parental leave benefits and you definitely need to know what options are available. Additionally, companies and health insurances might have fertility treatments included if that need arises.
Financial Readiness for New Parents
Did you notice that most of what we discussed requires you to set money aside for different expenses?
The fact of the matter is that financial readiness for a child is an equation. If you’re able to take your monthly income, subtract the money you need to set aside for your emergency fund, retirement, paying off debt, savings, taxes, and whatever else you have set as your goal, you should have enough money to cover your needs and wants. If the equation doesn’t balance out, it is very likely you will find yourself in a pick-and-choose situation between important expenses.
Having your first child is an incredible experience that comes with overwhelming joy and unexpected costs. Stable income will provide a stress-reduced buffer when it comes to thinking through the instability of a new child. Maintaining expenses that include margin will allow for flexibility when it comes to ongoing costs. An emergency fund will ensure you are prepared for the unplanned occurrences that will inevitably come up. And lastly, health insurance is invaluable when it comes to the medical costs that children require.
A financial advisor can help you figure out the kind of strategy you need in order to start growing your family. Whether it’s readjusting your current strategy or building a new one, it’s very important that you have your finances in check before you make this big decision.
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