Money Matters

Having your first baby is a time full of excitement. But while you’re busy learning the language of baby gear or brainstorming a name for your new bundle, you’ll also need to think about something less thrilling: finances. On that front, Stacey L. Bradford’s new book “The Wall Street Journal Financial Guidebook for New Parents,” is essential reading. The personal finance expert details step by step each of the financial decisions a young family must make—from maternity leave to life insurance to saving for college.

You write that the average parent spends between $11,000 and $16,000 during a baby’s first year, and more than $200,000 before a child’s 18th birthday.

Yes. This is a government statistic—which means it is nationwide—so the difference is that a New York parent can expect to spend much more. If a New York parent also splurges on private schools, as many do, it would not be unheard of to spend a million dollars.

Considering how much money raising a child entails, it makes sense that parents start budgeting while pregnant—particularly when taking into account maternity and paternity leave.

What people need to realize is that the majority of women who take a maternity leave are taking that time off unpaid, and paternity leave is always unpaid. So couples need to make sure that they can afford to spend as much time as their company allows them to take. While the federal law is 12 weeks, some employers are even more generous, and people take four or even six months. It would be such a shame if you didn’t have enough money set aside and weren’t able to enjoy all the time that you wanted just because of finances. When a woman is pregnant, it is an excellent time to practice living on one salary and seeing if you can do it. If it is really difficult, start putting money aggressively aside so you can supplement that one income during that leave.

Do you have any tips for parents who decide to stay at home but plan on reentering the workforce down the line?

I think it’s so important for a parent who stays at home to keep their job skills current. I understand the whole point is to stay home, but the easiest thing to do is stay in touch with former colleagues, have lunch with them, email them. If you work in a certain field with a busy season, such as accounting, offer to help out for a couple of months in the year. But even if somebody chooses not to do that, which I completely understand, they can still plan. They might decide that once all the kids are in kindergarten they want to go back to work. If that’s the case, a year or two before, expectant parents should start thinking about looking at some consulting work or part-time work so that when they are ready to re-enter the workforce, they will have skills and contacts and will be able to apply for those full-time jobs.

Parents who are working need to be diligent about understanding and utilizing all of the benefits that their employers offer. Can you review how flexible spending accounts (FSAs) can help with medical and other expenses?

FSAs are so helpful because everybody qualifies for them if your employer offers them. Your employer sets and decides how much you can set aside with pretax dollars. My husband’s company allows him only $1,000, but you’re still saving 40 percent of that money which goes towards your medical care. And usually when a company offers FSAs for healthcare, they will often offer it for childcare (providing you
are paying somebody with taxes; if you pay under the table, it doesn’t
count). This can also be used for summer camp.

Many people use an
accountant for their taxes, but you make it clear that parents really
have to know what deductions and credits they might qualify for. Can you
give some examples?

Accountants obviously know this stuff better than anybody
else, but they don’t necessarily know every family’s situation. For
instance if they knew you were paying a nanny under the table, for which
you can’t get any tax break, they might explain that if you had your
kids in daycare you could. Adoption is very common in NYC, so people
should be aware that the IRS allows an adoption credit worth over
$12,000. There are also some education credits for parents who are
returning to the workforce.

You suggest that besides writing a will, parents
should also write letters to their child’s guardian and trustee. Why is
this so important?

You want to give the guardian some guidance on how you
want your child to be raised. It could be something as simple as
something I included in mine—as much as I want my sister to raise my
child, I want to make sure that the other side of the family is very
involved. So my sister should allow the grandmother to take the child on
a vacation every year. She should also know what my values are, and
although she might think it is better to spoil the child with the money I
left, I want her to know I would rather that the money is left over so
they have some money after the child graduates from college. Those are
the kind of things you could put in a letter that I don’t think every
guardian would know because everyone approaches parenting so
differently.

If
you could give parents just three tips on easy ways to save money, what
would they be?

One of the easiest tips is to hold off on preschool—I don’t think
that children need a 2’s program, and you could save that whole year of
tuition. In this economy in particular, doing a nanny share is a great
way to save. More and more families are open to it, so it would be
easier to find a partner. As kids get older, limiting the after-school
activities is a great way to save. Really thinking through, “What does
my child love?” rather than putting them in soccer, ballet, gymnastics,
and over-scheduling them because you feel like all your friends are
doing it. Ask your kid, “What do you like the most?” because you might
be surprised.

What’s
the biggest takeaway message you’d like parents to remember from your
book?

A lot
of people lose sleep worrying about their finances, and there are a lot
of things to consider, but if you actually tackle them—I have a list of
the order in which they should be tackled in the book—I think that
people will find that they’re not worried so much. When you know what to
expect down the line, you can prepare so that everything is affordable.