Baby on the way? Here's how to prepare financially

Adding a child to your family can bring joy, excitement - and a boatload of bills.

A middle-income, married-couple family will spend roughly $233,610 (in 2015 dollars) to raise a baby born in 2015 from birth through
age 17, according to the most recent U.S. Department of Agriculture report on child-rearing expenses.

Families with lower incomes are estimated to spend $174,690, while those with higher incomes are slated to put out $372,210 from birth through age 17.

Andrea and James Kunk of Dayton, Ohio are among the many who are very familiar with the costs of raising children.  Aware of the potential financial strain, the duo waited until their early 30s to have their first child.

"We wanted to establish our careers and build a strong financial foundation before the kids came along," says Andrea, CFO at Peerless Technologies, a defense contracting firm that provides IT, cyber, and engineering services to the federal government. Andrea, 36, and husband James, 37, now have daughters Annabelle, 3 and Lillian, almost 11 months.

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“It is absolutely critical that expectant parents understand and plan for the costs of raising children,” says Cynthia Boman Thompson, a certified financial planner and director of financial and accounting services at staffing firm Cinder Staffing. “The costs will be substantial and you are providing the financial safety and security that each child needs to thrive and grow.”

Here are five ways to financially prepare for the parenthood:

1. Plan, and budget for, new expenses.  A newborn is accompanied by expenses such as diapers, formula, clothing, toys and baby furniture. Before their children were born, the Kunks "had a financial rhythm that included living below our means so we could add in the day-to-day expenses that babies bring without stretching ourselves," says Andrea.  Samuel Boyd, a certified financial planner and senior vice president at Capital  Asset Management Group typically advises new parents to budget an additional $15,000 into their cash flow for the first year of a baby's life -- and this excludes the cost of daycare.

2. Boost your emergency fund.  Save at least six months of expenses and "house the funds in liquid, short-term accounts that are easy to access," says Boyd. “At times of uncertainty, cash is king," he says.  "From medical complications to reduced income from longer than expected maternity or paternity leave to unexpected purchases related to parenting, there is no substitute for cash on hand.”

3. Review your insurance coverage. "Get a handle on the finer points of your family's healthcare, including maternity coverage, co-pays, deductibles, and what exactly your policy will cover," says Boyd.  Also review short-term disability and life insurance policies "to make sure the coverage is adequate,” says Sean M. Pearson, a certified financial planner and an associate vice president at Ameriprise Financial Services.  If a new parent is thinking about leaving a current job, it's important to review how that could affect health insurance, life and disability insurance as well as other potential benefits such as a 401(k), says Pearson.

4. Be careful with baby-related spending.  Buy diapers in bulk, shop for furniture that does double duty, such as a dresser with a changing table, accept gently-used clothing and borrow books instead of buying them,  says Cinder Staffing's Boman Thompson.  Babies grow quickly, so "investing in too much clothing can leave you with a lot of unworn, expensive outfits," she says.

5. Plan ahead for education costs. As soon as her kids were born, Andrea set up 529 college savings plans, which are investment accounts designed to help families set aside funds for college. "I really believe in the importance of education and financial planning early," she says. "A dollar invested today is worth much more than a dollar invested in the future," she says. According to recent analysis using T. Rowe Price’s college savings planner calculator, investing $1,000 initially and adding $100 per month in a 529 plan for 18 years would accumulate to $47,000, assuming a 6% average rate of return.

Tanisha A. Sykes is an award-winning personal finance and small business writer in New York City.

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