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our site asked Jean Chatzky, who gives expert financial advice on the Today show, in the New York Daily News, and in her books and blog, how she would advise people who are wondering if they can afford to have a child.
My parents always said if they had waited until they could "afford" a baby, my brothers and I would never have been born. It's the same for most people who want to have a child. Still, it's smart to think through the effect a child will have on your finances to know where you stand. Here's how to start.
1. Run the new numbers
If you had a budget before, you need to tweak it. If you didn't, you definitely need one now. Having a child can add anywhere from a few hundred dollars to several thousand dollars every month to your outlay, depending on your health insurance plan, childcare costs, whether you use cloth or disposable diapers, whether you breastfeed or buy formula, and more. You need to know where that money is going to come from and what you're going to do to stay afloat.
Pregnancy is a great time to prepare (and stash some savings). Go through your budget line by line and ask yourself: Can I spend less on eating out (yes, because you'll be doing less of it), holiday gifts, vacations? How much will I spend on diapers, gear to outfit the nursery, childcare? Ask a friend who's had a baby recently to share how it's affected her spending.
2. Weigh the question of staying home
Affording a child is one thing. Opting to transition from two incomes to one is another question entirely.
Some other factors to consider before you make the decision not to go back to work: Would you still have health insurance? Would you be able to get back into your field when you want or need to work again? And, finally, do you have an emergency fund? I would think twice about quitting your job unless you answer yes to all three of these questions.
3. Practice living on one income
The best thing you can do if you want to quit your job to stay home with your baby is to practice living on one income beforehand. You should do so, ideally, for your entire pregnancy, banking the second income. By the time the baby's arrived, you'll know how to live on a tight budget (or know that you just can't do it), and you will have built up considerable savings to fall back on if need be.
Note: It's important to make sure you have enough Social Security credits under your belt in case you don't ever return to the workforce. You need 40 credits to collect your benefits when the time comes. (You can collect benefits based on your spouse's earnings, but if you divorce you have that right only if your marriage lasted more than 10 years.)
4. Factor in the tax breaks coming your way
Some of your new expenses will be offset by the child tax credit, as long as you don't forget to claim it. (Surprisingly, many people do.) Married couples who file jointly, have one child, and earn no more than $110,000 a year can claim $1,000 a year, in addition to the $4,050 exemption you can claim for each dependent.
Then there's a flexible spending account (FSA). You likely know that FSAs let you pay for healthcare with pre-tax dollars (saving you about one-third of the cost). You can do the same with a dependent-care FSA to cut childcare costs. Ask your employer if you can sign up for one.
5. Think about college
Notice, I didn't say "save for college." If you're not steadily saving for your own retirement, you're not there yet. Your retirement comes first. There's plenty of financial aid for college, but no one is going to finance your retirement. So max out your 401(k) contribution at work, or at least contribute enough to grab your employer's matching dollars, and then open a Roth IRA.
Why a Roth IRA? Because you can use it for retirement or for college. If you're on track to a great retirement nest egg by the time your kid reaches senior year in high school, you can pull money out of your Roth to help pay tuition.
If you still have money available after saving all you can through your 401(k) and Roth IRA, open a 529 fund for your child. A 529 lets you save for college in a tax-smart way. Go to savingforcollege.com to find the best plan for you.