Family using outdoor kitchen

You may have heard the terrifying statistic from the U.S. Department of Agriculture, which estimates it costs an astonishing $233,610 for a middle-income family to raise a child—and that’s before adding in college.

Before you swear you will be childless forever—or start second guessing the ones you already have—realize that it is possible to afford kids without giving up every other potential financial goal you have.  If you are expecting a baby or already have expanded your family, here is what you need to know about how to establish a new budget once you have kids.

Practice Living on Your “New” Income

Childcare costs can eat up a significant portion of your paycheck, and seeing the numbers in dollars and cents can impact your career decisions. That could lead you to decide it makes more sense financially for one parent to stay home with the baby, says Tony Drake, CFP and founder of Drake & Associates in Waukesha, Wisconsin. “If you are going from a two-income household to a one-income household, start acting like the changes are effective today, which could mean big cuts to your expenses,” he says.  Living on one income not only allows you to test drive the new budget, but gives you a chance to build up a cushion for an emergency fund (more on that later).

And even if both parents return to work, that childcare expense is real, so factor that into the new budget you are practicing living on.

Talk to Your Human Resources Department About Benefits

Even healthy new babies have a ton of medical needs—from immunizations to well-child checks. Early on in your pregnancy, make a date with your HR department to find out how big a bite it might take to add a child to your health insurance. While some companies cover the entire family of an employee, others might make you assume a significant portion of the cost of your new baby’s health insurance. Take the time to compare you and your partner’s plan—if you have access to both—and determine which one will offer the best value, not only in monthly premiums but once you factor in copays and deductibles. Then figure those into your new budget.

Look into a Life Insurance Policy 

While life insurance can be important for anyone, it’s particularly important for a young family, says Drake. “Young couples are likely dependent on each other’s income, and it can be financially devastating if you don’t have a plan to replace that income if something happens to one spouse.” While you might have previously depended on employer-sponsored insurance, that may no longer be adequate—and can also disappear if your job does.

“A good rule of thumb is for your death benefit to be equal to seven to ten times your annual salary. This ensures your loved ones and assets are protected,” Drake recommends. And if one of you has decided to stay home to be a primary caregiver, don’t overlook the cost of replacement childcare; it can be wise to get a policy on both partners in that case.

However, Drake cautions, life insurance can be both costly and complicated if you don’t buy the right policy, so shop around to compare policies and prices and determine what sort of coverage is best for you. You might opt for a term life policy that is designed just to cover a death benefit for a specific period of time, or permanent life insurance, which can build cash value but also can be more expensive at the outset.

Don’t Neglect Your Future

Sure the expenses of raising a child might seem overwhelming—from diapers and strollers today to camp and music lessons down the road. But that doesn’t mean that you can put off saving for the future. “Put yourself and your future first,” Drake says. And the earlier you start funding your retirement the better because that money has more time to grow.

Drake says that he often sees young couples who dealt with student loan debt prioritize funding a 529 college savings plan in order to ease that burden for their children. And that’s a wise strategy—unless you are neglecting your own retirement savings to do so. He gets it: “I have three kids, and I know how difficult it can be to put yourself first. However, you have to prioritize your retirement savings; if—and only if—you are meeting those savings goals and have money left over, then you can consider saving for your children’s future college expenses.” Remember that your children can take out loans for college, but there are no loans for retirement.

Build an Emergency Fund

If you have ever spent any time around kids, you know that “emergencies” seem almost constant—from visits to the emergency room for stitches to replacing a lost inhaler.  Contributing regularly to an emergency fund ensures that you won’t have to tap high-interest credit cards to cover the inevitable, unexpected bill. Drake recommends working up to a fund that can cover at least six months of expenses, kept in a separate savings account where it is easily accessible.

Don’t Be too Worried About Our First Number

Oh, right…we probably scared you a bit with that huge number we started with…and, yes, it is giant. But Drake says it’s important to consider what’s included in that number—such as housing and transportation expenses, which likely won’t rise precipitously even when you have kids. “If you have a proper budget before starting a family, those expenses are already accounted for,” he points out.

But if the budget still seems large when you look at it, figure out where you can cut back, whether it’s meals out, clothing or extracurricular activities. And yes, those “extracurriculars” can start earlier than you think, in the form of parent-child classes and activities. Think twice before joining a baby-and-me music class, for example, when dancing around your own kitchen might work just as well—for a lot less.

Finally, Remember that Kids Are Truly Priceless

Yes, we’ll end with that sappy sentiment. You just can’t put a price on the first toothless grin or shaky first step. So put some energy and thought into budget planning up front—and you’ll be less likely to be stressed about your finances so you can focus on what really matters.

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