Why I’m Starting a Baby Savings Fund

The engagement ring had barely slipped onto my finger before the baby questions started. Do you want kids? When are you planning to have them? I expect grandchildren within the year. That last one was more of a statement than a question, but you get the gist. My husband and I want kids. We love children and see them as a part of our future. But the truth is, we’re not ready for them just yet – emotionally or financially.

My husband is in graduate school and for the past five years we’ve been hustling on our savings goals. Down payment? Check. Jumpstart on retirement? Check. Investment portfolio? Check. Putting money aside for our future helps us feel in control and optimistic about the days to come. But recently we realized we haven’t saved a penny for having a baby.

According to a 2017 study by NerdWallet, 29 percent of parents did not save for their child’s first year of life. The same study found that 57 percent of current parents regret not taking more financial action during that time — a feeling I want to avoid. NerdWallet estimates the cost of a baby’s first year ranges from $21,248.22 to $51,985.37 depending on things like whether you get life insurance, use childcare or save for college.

SAVING FOR YOUR BABY

A baby savings fund is meant to cover one-time costs and ideally help lighten some of your initial ongoing expenses.

One of the biggest expenses is actually delivering the baby. FAIR Health Consumer and Business Insider looked at delivery costs state-by-state. I currently live in California. And boy was I surprised when I saw that it costs around $7,000 to $10,000 to give birth in a hospital, even if you have insurance. Costs vary by state, but those are some intimidating numbers. And they don’t include doctor appointments leading up to and after giving birth.

After the hospital bill, there are plenty of smaller one-time expenses. The cost of furnishing a nursery will vary based on the type of items you purchase, but The Bump found the average nursery set-up is $2,000. They also estimate that baby gear, from car seats to playpens, can run as much as $2,770. Baby needs clothing and so does mom, who will require maternity wear and nursing bras.

57 percent of current parents regret not taking more financial action during the first year of their baby’s life — a feeling I want to avoid.

Maternity leave policies vary by company, but many new parents will have a drop in income during this time, even with generous policies. Generally, maternity leave lasts 12 weeks, but typically you should expect to earn only 60 to 70 percent of your gross income for the first six weeks. If you anticipate wanting to take a longer maternity leave or cannot afford a reduction in pay during your leave, then save for that, too. While you’re taking a look at your finances, you may also want to consider taking out a larger life insurance policy that would cover the cost of raising your child.

Childcare is a notoriously steep expense. A report from Child Care Aware of America found that it’s unaffordable in all 50 states. On average, couples across the country pay more than 10 percent of their household income each year for childcare. Here's the kicker: That 10 percent only covers one child.

You hear about diapers being a financial drain. But the lifetime cost of diapers — $2,000 — is about the same as the cost of one month of infant center-based child care in Washington D.C. and Massachusetts. Those are the two most expensive spots in the U.S. for infant center-based child care, and they illustrate the high burden of child care nationwide. Setting aside some money now may alleviate some of the ongoing financial burden.

OUR PLAN

There isn’t an exact number my husband and I should put away before we have a baby. We have no idea where we will live when the time comes. Or what type of health insurance coverage or expenses we will have. Based on our current salaries and our future earning potential, I’m confident that without a baby savings fund, we could still manage. But I want to mitigate any potential financial stress. I want to enjoy pregnancy and my child’s first year without having to worry about bills.

Our plan is to allocate a little money each month to insure we have at least the costs of delivery covered before the baby comes. And we’ll ramp up our saving as parenthood is closer and closer on the horizon.