Expecting The Expenses
Sunday, December 9, 2007
Like most new parents, my wife and I didn't need much time to become acquainted with hindsight. We should have slept more before Sam was born. We should have fed him before taking him to the grocery store. We should have kept that burp cloth on a few minutes longer.
Also, we should have saved a lot more money. Kids are not cheap to maintain. This became perceptible a couple of months ago, the first time we dropped $25 on a package of Pampers. "Maybe we should go to Costco," my wife said.
Financing a baby is typically the last topic on the minds of new parents. Hours and hours go by discussing less pressing matters: Do you think the neighbor's daughter is old enough to babysit? What about a theme for the nursery? Sports, animals or clouds? Where should we register? Which stroller? Should we take one last vacation -- a babymoon? Where should we go? How should we prepare the dog for his new sibling?
"Most people don't plan their own spending on their own wants and needs," said Barry Glassman, a financial planner with Cassaday and Co. in McLean. "With kids, it's even a step further in the wrong direction. It's so easy to get caught up in spending in a variety of ways, and there's no planning or accounting for how the dollars will add up."
Oh, how the dollars will add up. We didn't realize just how correct Glassman was until I played around with a "Cost of Raising Your Child" calculator on BabyCenter.com, which charts spending estimates using federal statistics on family expenditures for children. I entered the region where we live. I entered our income. I said we would send Sam to a state college. (He has not yet expressed an interest in an out-of-state school.) Then I pointed my mouse to the "calculate" link, clicked, and prayed.
My computer told me this: "Here's what you're likely to spend to raise a child: $340,552." (Note to self: Praying does not in any way lower the cost of children.) I told my wife the figure. She said, with a chuckle, "I sure hope he's worth it." I told Glassman. He said, with a serious tone, "It will probably be more." I briefly contemplated a garage sale.
Then I set out to do what we should have done nine months ago (or longer): talk to some financial planners. I hammered away with questions to Glassman, himself an experienced parent, and to Clare Stenstrom, a financial planner in New York who describes herself as a "professional aunt" to six nieces and nephews. To make myself feel better, I asked other new parents around the office to describe the financial planning they had done. To my delight, when I asked a new mom whether she had a will -- this was Stenstrom's first question to me -- she said no. We are not alone.
According to Stenstrom and Glassman, here's what we did correctly. For starters, we took advantage of a short-term-disability policy from Aflac, a secondary insurance provider, to help cover my wife's unpaid leave after Sam arrived. This was an important step because my wife is taking three months off to care for him. We paid $100 a month for 10 months before the birth -- the minimum period we needed to be enrolled to receive benefits -- and after my wife had Sam, we were able to recoup about a month's worth of her salary. Note to potential parents: Check to see if your company offers Aflac; my wife's employer does.
A few months before Sam was born, we also increased the number of withholding exemptions for our paychecks. Although this means we will get less back in our tax return, changing our withholdings let us put aside a little extra cash to help defray the loss of my wife's salary for three months. Why wait for the extra money when we could have it now?
The problem is that Aflac and the withholdings strategy are the only financial planning steps we have taken. We did not, as Stenstrom and Glassman suggested, come up with any kind of budget in the year before Sam was born that would allow us to save more money for clothes, diapers, furniture and accessories. We did not, as the financial planners suggested, use a program like Quicken or Microsoft Money to closely track our expenses to analyze where we could cut back to save even more money.
"A young couple should plan for expenses for children much like an engagement ring or their first home," Glassman said. "A couple cannot turn a blind eye to the fact that child expenses are coming. It's easy to look the other way, especially because it's such a fun time in a couple's life."
There is so much more to do.