This post is from guest author Victoria. Victoria is a writer and social media nerd who lives in the Northwest U.S. and loves strong coffee and consumer psychology. When she’s not writing, she’s cooking vegetarian food or running in the trails near her home.
With the millennial generation entering their 30s, many are beginning to settle down. If you’re one of the many young people now starting a family and exploring homeownership, you’re entering an exciting time in your life. However, with these changes come new responsibilities and financial considerations.
While it might seem like common sense that starting a family can be expensive, it turns out that many people don’t fully understand the financial undertakings that come with a new baby. In the long term, a report from the U.S. Department of Agriculture found the average cost of raising a child born in 2013 until age 18 for a middle-income U.S. family is approximately $245,340 (or $304,480, adjusted for projected inflation). Any investment that big is worth planning for!
Another reason to consider your budget: data suggests that financial stress during pregnancy might have a negative impact on a baby’s health. Stress to the mother of any kind isn’t ideal during pregnancy, but a study conducted by the Institute for Behavioral Medicine Research at The Ohio State University Wexner Medical Center found that financial strain had the biggest overall impact on health.
Luckily, there’s plenty you can do to prepare for starting a family. All it takes is adding some structure to your spending. Check out these tips for before baby comes:
Shop Smart for Baby Gear
One exciting part of starting a family is the nesting process — setting up the baby’s room, crib, and necessities in preparation for the due date. During this time, it’s normal to feel tempted to load up on tons of supplies. There are a few keys to being a savvy shopper during the nesting period.
One spot where parents-to-be tend to overspend is on clothes for their little one. Fortunately for our wallets, babies don’t know whether their duds are designer or not. Babies also grow pretty fast, meaning many clothing items will only get a few months of wear time at best. If you’d like to save some extra cash, try shopping second-hand for baby clothes and reaching out to friends and family to see if they’ve got some extra onesies they can pass your way.
Another smart shopping tip for stocking your baby’s room is comparison shopping online. Check out online shops for baby gear before you browse brick-and-mortar stores. You’ll likely find at least a few steals by checking the web first.
Finally, keep saving by nixing inessential items like diaper warmers, bathing buckets, sleep positioners, and baby shoes — at least until you know you need them. It’s tempting to splurge on these cute, but not totally necessary items, but it’s better to plan for keeping a little extra cash around for after baby is here, so you can spend it on items you really will need.
Plan for the Long Term
While millennials are often referred to as a “generation of renters,” if you’re ready to start a family, homeownership might be a good move. While it’s not an essential, owning a home has some perks for families in the long run .
Owning a home has some benefits for couples with kids, like increased stability and security, more options for modifying the space for their families’ needs, and the opportunity to create a lasting foundation made up of both traditions and distinct experiences. There are also some long-term financial advantages to buying a home when you have a family.
A home helps you build equity over time — a perk you won’t get from rentals. You can use that equity to secure a home equity loan, and you can also increase the value of your home by making improvements on it. Having access to funds like a home equity loan is important in a financial pinch, like when members of your household accrue expenses that they can’t afford to pay themselves — something kiddos tend to do!
Homeowners might also be eligible for some tax benefits. Many states employ a homestead tax exemption that reduces your tax burden if you’re living in your home. Federal tax deductions can also help reduce what you owe, if you’re eligible. These can mean more money in your pocket in the long term.
If you determine that owning a home is right for your family, remember that homeownership comes with a new set of responsibilities and expenses. You’ll need to plan for higher upfront costs, and for maintaining and repairing your new home. You should also expect to pay for homeowner’s insurance, and to account for estate planning as well. You can look into a family law practice when it comes time to determine what to do with your assets in the long term.
Save Around the House
There are ways to cut some costs when it comes to the things inside your home as well. The little things really do add up, so check your current spending habits to assess where you stand with unnecessary spending. Chances are, unless you’re already a super saver, you’ll find a few areas where you can improve.
It’s a great idea to prepare for what your spending will look like after your baby is home before they get there. Prepare a budget that accounts for all of the extra expenses you’ll have after your child is born, and try sticking to it for a little while before you need to. If you find it’s easy to cut out the extra spending and you’re able to tuck away the extra money, you’ll have a nice cushion built up by your due date — which definitely can’t hurt! You’ll also be accustomed to new helpful spending habits.
Try making some simple changes to your everyday purchasing, like buying store-brand instead of name-brand foods. Cutting down on processed food and eating out often is a great way to eliminate some extra expenses, and it might help you health as well. Look into store brand or natural alternatives to household cleaners, paper towels, and paper plates, all of which result in money going right down the drain or straight in the garbage. If you’re always first in line for the latest iPhone, consider investing in a durable case and committing to your current one for the long haul.
Look into price cuts on things like your phone bill, internet service, and even your doctor! These are often areas where we don’t think about saving, but it never hurts to call your customer service for your ISP or cellular service and ask if there are any discounts you can cash in on. Similarly, shopping around for medical services can be an excellent way to save money that’s grown in popularity in recent years.
And finally, address one of the biggest concerns for millennials who are putting off big purchases and plans for starting a family. If you’re a college graduate with student loans, check out refinancing options that can help cut your monthly bill and free up some extra funds. Your repayment might take longer, but student loans aren’t often easily paid off in the short term, and you likely won’t want to wait until you’re completely out from under them to settle down.
Prepare for Parental Leave
After you’ve prepared for the long term, it’s a good idea to plan for right after baby comes home. Maternity and paternity leave is an important part of adjusting to life with your new family member, but it’s impact on your finances depends on a lot of factors. No matter your unique situation with your employer and health insurance, you’ll want to ensure that you’re not stressing over your spending during the first few weeks after your little one has arrived. Supplemental insurance plans can help bridge the pay gap during parental leave, freeing up more time for you to spend at home without breaking the bank.
And before your parental leave begins, make sure you’ve got a plan for once it’s over. Secure a child care provider, whether a profession or family, for after you’re back to work. It won’t be something you want to worry about last minute, and waiting may limit more affordable options.
While none of these tips alone will guarantee you’re financially prepared for starting a family, combined they can set you on the right track. Personal finance management is about seeing the big picture — little things that might not seem to influence your overall financial situation can quickly add up.