Childbirth: Can Your Finances Handle It?

Before the birth of my son, my husband and I were often asked, as most married childless couples are, when are you going to have a baby? My immediate response was when our finances are in order. The rebuttal, You’ll never be 100 percent ready, Just Do It! What bologna!! Almost 18 months have passed since our heaven sent blessing entered this world and I can confidently say, they’ve never been more wrong. If your finances are not in order, you are setting yourself up for a financial disaster.

The average cost of raising a child during the first year of life is $6,500. This figure includes baby formula and food, diapers, clothes, a stroller and nursery items. Additionally, according to the United States Department of Agriculture, the average yearly cost of childcare for a child zero to two years of age is $1,680. Sound feasible? Perhaps you should consider something else. What if you missed one, two or even three paychecks? Could you handle it then? Probably not. So how do you prevent your heaven sent blessing from leading to a financial disaster? Begin by assessing your current situation, setup a budget, and develop a debt reduction and long-term savings plan.

Financial Assessment
First conduct an assessment of where you are financially. Begin with an inventory of your inflows including salaries/wages, interest from investments, child support and alimony. Next calculate the total amount of your outflows including the mortgage/rent, auto loan payments, car insurance, credit cards, utilities, and other related expenses.

This should provide you with a quick snapshot of your financial situation. Is the remaining balance enough to cover the $8,180 needed in the first year? If not, examine your outflows for non-essential expenses such as cable TV, telephone and Internet services. Perhaps you could eliminate or reduce your service packages. Shop around for more affordable car insurance rates and credit cards with a lower interest rate and no annual fees.

Establish a Budget
Next you want to develop a budget. Creating a realistic budget is by far one of the best ways to ensure a smooth transition from pre-pregnancy to birth. The key to living on a budget is discipline and could be the difference between financial freedom and bankruptcy.

Gather the billing statements used to complete your financial assessment. Create a spreadsheet in Microsoft Excel. Beginning in the second row of Column A list each the source of each Inflow in the first few rows. Once you are finished created another cell with a total for all Inflows. Skip down two rows and start listing each Outflow/Debtor. Then create a row, titled Total Expenses. Drop down one row and create a Net Income row. This row will be the difference between your Total Inflows and Total Expenses.

Fill the second column with the payment due dates for each corresponding inflow/outflow. Use the first cell of the remaining columns to list the date for each pay period through the end of the year. Then decide which bills you will pay each pay period and record them in each corresponding cell throughout the entire spreadsheet until the December column is completed. Finish this exercise by creating one final column, which will provide a horizontal total of all inflows and outflows.

When completing this exercise, don’t cheat your self by excluding categories and outflows for savings, groceries, gas and miscellaneous items. These expenses can add up pretty quickly and are enough to send you over board.
Your final product should be a pretty accurate reflection of your situation. You will easily be able to determine if you can afford to have a child or two.

Develop & Implement a Plan
If you aren’t where you’d like to be, make a commitment to send in a little extra each month to pay down some of your debt. If age is a concern, be more aggressive in paying down your debt, skip your annual vacation and forgo exchanging gifts on your anniversary, birthday and Christmas. You’ll be glad you did.

Savings
You should aim to have a minimum of three to six months of living expenses set aside prior to the birth of your baby. These funds will serve as a cushion if you decide to remain out of work longer than your maternity plan provides for with compensation. It is also essential to have funds available in the event of a job loss.

My final advice: Always spend less than you make and stick to your plan. The last thing you want worry about after your little one has arrived is how you’ll pay next month’s electric bill.

Michelle P. Sharrow is a freelance writer located in Clinton, Maryland. Michelle holds an MBA in Finance from the Johns Hopkins University. She and her husband are parents to 18-month-old Brandon. Michelle’s home on the web is http://www.michellesharrow.com.