Having a baby requires thinking through all aspects of your life, especially the financial side. You have to communicate with your partner and evaluate your finances several times before deciding. Often, your assessment will be guided by the open-ended question, "are we financially ready to have a child?"
You will need to go over your finances to answer that question. Then figure out how well you are doing on each front to determine how well you can support a baby.
Being a parent will put new responsibilities on your shoulders, and they won't be light. Fulfilling these duties will require more than taking money out of your savings account; it will affect all angles of your finances. Without enough preparation, you won't be able to stay on top of your goals or ensure your family's financial prosperity.
So how do you gauge your finances before having a baby?
This article will explore five things you need to consider before having a baby and why they're important for your finances.
This cost will vary from one couple to another and will be determined by the lifestyle you wish for your child. But to get a ballpark number of how much it will cost, you must break down all the anticipated things you will need to pay for and how much you wish to spend on each. This won’t be easy because raising a child is an ongoing process until at least they’re adult and financially independent.
Here’s what you should be ready to pay for:
Pregnancy and Delivery - The cost of maternity care and delivery will be high. On giving birth, normal delivery will start at Ksh40,000 and can run up to Ksh260,000 for a c-section. Ensure you have adequate health insurance that could help you cut these bills.
If you and your partner choose a different path to have a baby, like IVF, insemination, or using a surrogate, among others options, the cost will be higher. Other processes like adoption will also cost a lot.
Health: Paying for the child's healthcare might increase your medical insurance premium, and you could pay even more if you do it out of pocket. You should ensure you are in a position where you can budget the healthcare cost of your family before starting one.
Housing: Having a baby means you might have to move to a bigger house in an ideal location with good security, good hospitals, and overall better amenities. This will likely increase your housing budget.
Childcare: Once your leaves are over and you and your partner have to return to work, you'll have to pay someone to take care of your child. This is one of the single most expensive costs you might have to endure until your child is old enough to start school.
Food: It will be some time before your kid starts eating everyday food. Until then, you'll need to buy formula and other baby food.
Clothing: Babies grow up fast, which means you will change their wardrobes a few times a year.
Education: For your child to have the perfect future you wish for them, they need the best education, which can be expensive. You'll need to start saving early for that to avoid any surprises in the future.
Others: And so many other expenses. From toys when they're toddlers, video games when they're teenagers, to guitar classes when they want to try something new.
For most people, it might be impossible to save enough to cover all the costs of raising a baby. Therefore, how much you need in savings before you decide to have a baby will vary from one person to the next.
To keep yourself on the safe side and avoid dipping into your retirement nest egg or going into debt, you should have enough savings to cover all a newborn's major first-year expenses. This should include delivery and maternity care, baby crib, first-year daycare, and clothes. The savings should also be enough to cover your child's prenatal and postnatal care.
You should also save enough to cover emergencies such as complications that can occur during or after birth. Most of these complications might not be covered by your insurer if you have basic plans.
These savings should be kept separate from your goal savings account and your rainy day fund. Separating them will help you avoid interrupting your goals and avoid overspending on the baby when it arrives.
Having enough savings when you decide to have a baby is essential, but just as important is your cash flow, which your income could determine. When financially preparing to have a baby, you must have at least one reliable source of income that can help you keep up with your baby's current and future needs. More directly, you should have the income to handle the ongoing costs of supporting your family.
Still, on it, your debt-to-income ratio should also be healthy. You don't want much of your income going toward paying debt obligations. And if it does, it should be helping you build equity. Consider paying off high-interest loans and all bad debts that might prevent you from providing adequately for your child and saving for your future.
Your income should be able to support your family, save for your kid's education, and also be enough to help you chase personal goals.
Once you have a baby, you should also consider increasing your sources of income or investing in income-generating vehicles. A secondary income could come in handy if you or your partner has to take an extended, unpaid leave after your child's birth.
How will having a baby affect your career? If you are lucky and have a safe delivery, you'll be back to work as soon as your leave is done. However, if they're complications, you might have to extend your stay at home, which will likely derail your career. Additionally, you might not receive any payments forcing you to dig into your savings.
Your work-life balance will also never be the same after you return from your leave which can be up to three months. You will need to learn to prioritise between two important things and ensure your productivity isn't affected. If you cannot find balance, at the minimum, your career growth will be stagnant, and at worse, you could be fired if you are not bringing enough value to your employer.
Depending on your income and needs, you or your partner might decide to stay home and take a break from work. Before making this decision, you must understand its effects on your career. You should consider talking to a career counsellor who will help you navigate parenthood and ensure that you don’t put your job at risk.
Having a baby means new responsibilities and new financial goals. This might force you to restructure how you save and invest for your current personal goals like retirement. The need to provide for your baby and ensure they live the best life possible and receives the best education shouldn’t supersede your future plans.
Instead, you should align all your goals, have a solid plan of how to achieve them, and track each separately. Create a saving and investment plan that allows you to save for all your goals without feeling like you are over-prioritising on one front.
You should adopt simple strategies that don’t strain your budget, like starting to invest in your kid’s college tuition early. This allows you to save small amounts every month and reinvest all your profit, making your money work for you in the long term.
Before having a baby, you must review your coverage and ensure you are adequately insured. Insurance can protect you in many ways, especially as a parent when you have to deal with a lot of emergencies and don’t want to expose your child to financial instability.
Think about a scenario where as a parent, you lose your income due to illness or disability, or even worse, you die and leave behind a young child. Wherever the magnitude of the problem, insurance can help you soften the blow and help you provide for your child even in uncertain times.
Some vital covers you should consider before deciding to have a baby include,
Having a baby will bring a lot of changes to your finances, changes that you must anticipate and prepare for beforehand. Going through your finances before making this big decision will help you understand if you can really afford to bring a child into this world and also help you create a plan on how you will financially support it once it arrives. By digging into and considering all these aspects of your finances, you will be able to align all your finances and give your child the best life possible when they arrive.
And if it so happens that you are already expecting or have a newborn, it's not too late to start considering the six factors discussed in this article. You can still go back to the drawing board and double-check your finances, change anything that might need to change, and get yourself back on track. Happy parenting!!