CFP: How to know if you have enough money to start a family

  • Many people are concerned that they don’t have enough money to start a family, given the global recession that’s underway.
  • Lauren Anastasio, a CFP at SoFi, outlined three “pillars” of financial stability that families should focus on: building an emergency fund, eliminating all high-interest debt, and getting comfortable with your cash flow.
  • Anastasio tells clients they can expect to spend between $16,000 and $46,000 in the first year of their child’s life, depending on their lifestyle choices.
  • Still, the decision to have kids is highly personal.
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  • Visit Business Insider’s homepage for more stories.

Some folks who were hoping to start families soon are thinking twice.

The world is a scary place right now — not solely because of the health crisis but also because of the recession that’s well underway. Millions of people are unemployed, and even more wake up daily worried that today could be their last day on payroll.

In fact, Brookings Institute economists predict that the coronavirus pandemic could result in 300,000 to 500,000 fewer births in 2021 than normal, Business Insider previously reported. That’s largely because of economic loss, insecurity, and uncertainty, the researchers say.

The Great Recession had similar effects: Birth rates decreased by nearly 400,000 between 2007 and 2012.

Preliminary evidence suggests those economists’ projections could be on target. In a recent survey by Modern Fertility, which provides at-home fertility testing, and personal finance fintech SoFi, 31{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} of participants who were asked about COVID-19 said the pandemic has prompted them to postpone their plans for having kids. Of that group, 41{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} said that’s because they’re worried about their finances. (The survey was small: 406 people were asked in April 2020 how COVID-19 would affect their reproductive goals.)

Lauren Anastasio, a certified financial planner with SoFi, said since the onset of the coronavirus pandemic she’s seen individuals and couples asking questions like, “What if I lose my job? What if I lose my insurance? What if I need to start dipping into my emergency fund? Can I afford to both take a pay cut and have a baby?”

Anastasio tells clients that, in the context of planning a family, there are three “pillars” to financial stability.

Before we get into those, a word of caution from Anastasio: Having kids is a highly personal decision that a financial planner can’t make for you. Only you can know (or guess, at least) whether you feel ready.

Here are the three pillars Anastasio described, and how to know if you’ve got them.

1. You have an emergency fund

An emergency fund should cover three to six months of expenses, Anastasio said. This is “more important now than ever,” she added, given the current health crisis and soft labor market.

2. You’ve eliminated all high-interest debt

Note: This doesn’t include student debt. “You do not need to pay off student loan debt before you become a parent,” Anastasio said.

Instead think credit-card balances, personal loans, and unsecured lines of credit. Anything with 7{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} interest or higher counts as high-interest.

3. You’re comfortable with your cash flow

The funds coming into your bank account should comfortably cover your existing obligations, Anastasio said, while also allowing you to save for retirement.

Expect to spend between $16,000 and $46,000 in the first year of your child’s life

Even in pre-pandemic times, most parents said they underestimated how expensive it is to raise kids, Business Insider’s Hillary Hoffower reported.

But Anastasio said she hesitates to give anyone specific numbers that they need to hit before starting a family. Instead she advises people to think about a range for the first year of your child’s life.

That range is, admittedly, very wide: $16,000 to $46,000.

It depends on your “money personality,” in Anastasio’s words, and lifestyle choices like childcare, medical bills, and your approach to feeding your kids. (The US Department of Agriculture puts the cost of raising a child through age 17 at $233,610.)

Anastasio encourages clients to take into consideration potential expenses including the following. (The dollar figures are Anastasio’s estimates.)

  • IVF, egg freezing, and adoption: up to $40,000
  • Childbirth: typically about $10,000 for those with health insurance coverage. The bill can be two to three times higher for those who experience complications, have a C-section, or don’t have health insurance.
  • Health insurance costs, which they increase when you add another family member to your plan
  • Childcare costs or reduced income if a parent is planning to stay home with the child

Other steps toward financial preparedness for parenting, Business Insider’s Liz Knueven reported, include rethinking your health insurance coverage and considering whether you’ll need a bigger (and more expensive) place to live.

You can also open a 529 plan, which helps families save for college over time. If you start investing money now, when your child is young, those funds may grow over time.

Ultimately, Anastasio said, it’s important to think practically about how much you can upgrade your financial situation before having kids. “Being realistic about that range and the expenses associated with it will help people feel better prepared,” she said. But if that $16,000 figure has you panicked, remember: “You don’t need to have every penny in the bank before you get pregnant.”

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