10 Financial Steps Single Parents Should Take Before Welcoming a Child

It's hardly a secret that children are one of life's biggest (never-ending) expenses. The United States Department of Agriculture's Center for Nutrition and Policy Promotion estimates that a child born in 2015 will cost parents about $233,610 by age 17. That figure is based on the likely expenditures of a middle-income, two-parent family. For single parents, the amount is closer to $172,200, which is still no small sum, particularly for a single-income household.

These USDA projections are based on the amount parents spend annually on such necessities as food, housing, transportation, health care, clothing, child care, education, and other unnamed miscellaneous costs. And as any experienced parent can tell you, that government figure is likely a vast underestimation of reality when you factor in such things as: extracurricular activities and sports; supplies and uniforms for said extracurricular activities; family vacations (if you can afford those at all); and of course, birthdays, Halloween costumes and the many, many other expenses not likely accounted for in a government bean counter's assessment.

All of which is to say that as a single parent expecting a new child, it's never too early to begin preparing for the onslaught of costs that will come with your bundle of joy. In fact, some would argue that getting your financial house in order in the months and weeks leading up to the delivery of a newborn is even more critical for an expecting single parent than for other families—because you're the sole bread winner, and thus, the only one keeping the lights on, the roof over your family's head, and the food on the table.

"If anything happens to your income, there's no other income source to rely on. If a large emergency expense comes up and you don't have an emergency savings fund, you may quickly find yourself in financial distress," says Jacqueline Gilchrist, founder of the financial website Mom Money Map. "As a worst-case scenario, if anything should happen to you and you don't have your insurance or financial planning in order, you risk putting your child's future in jeopardy."

With such wise words in mind, here's a look at some of the financial steps (and mental adjustments) to consider if you're a single parent expecting a new baby.

Shift your thinkingwith regard to money and aim to eliminate debt

Having a child means life is no longer all about you—but you knew that already. There's another human being who's completely dependent upon you, and that fact should guide how you handle money going forward, says Dr. Ann James, founder and CEO of Financial Freedom Battle Buddies and an accredited financial counselor who works with single parents, low-income families, and veterans.

"After a failed marriage, I became a single mother and it was then that I realized I had to get my finances in order. No more going out and spending like crazy and getting deeper and deeper in debt. I didn't want my past mistakes with money to mess up my daughter's future," James tells Parents.

For James, that meant making it a priority to reduce or eliminate debt entirely—and she recommends others attempt to do the same. If it's possible, aim to be debt-free prior to your baby arriving. If that's not feasible, at least try tracking where you're spending money needlessly in order to begin reigning those habits in and using that free cash to pay down debt more aggressively.

"You must learn how to manage your own personal finances before bringing a child into the world," says James.

Create a detailed budget designed for your new reality

The sweeping lifestyle changes that will be ushered in with the arrival of your baby include radical shifts in your weekly and monthly spending patterns. Take the time before your new family member enters the world to map out an updated household budget and spending plan. This is particularly important for single parents who are covering all the expanding expenses with just one income.

"Your post-baby spending will include diapers, childcare, formula or supplies to pump and store breast milk; clothing, medical co-payments, and extra transportation costs associated with taking the baby to childcare," Brandy Baxter, accredited financial counselor with Living Abundantly tells Parents. "Develop a habit of making and sticking to a spending plan each month and that will help you manage expenses after the baby arrives."

The best way to juggle all of the new costs you'll incur is to adjust your monthly spending now, as if the baby were already here, adds Baxter. For example, calculate the price of childcare and diapers on a monthly basis and start setting aside that amount in a savings account before the baby is born.

"This will help you experience the financial impact and you will build a nice savings that can help cover these upcoming expenses," says Baxter.

And remember, when you create your new forward-looking budget, be sure to factor in an initial or temporary decrease in income.

"Think about how your income may change. Many parents focus on the increase in expenses, but if you're taking unpaid time off, working fewer hours, or have increased deductions from your paycheck like higher health insurance premiums to cover your expanding family, your net income will go down too," Lauren Anastasio, a CFP with SoFi, tells Parents.

Seek financial advice from friends and peers

Talking about money is awkward for the best of us. But women in particular avoid doing so. This needs to change because there's much to be learned from being more open with each other about money lessons.

"The path might be easier to navigate with support from friends or family who have been there before. Speak with those in similar situations—parent groups and friends—and you might yield some advice that you hadn't considered before, which will then ease the approach towards more concrete planning steps," financial attorney Leslie Tayne, author of the book Life & Debt, tells Parents. "This can be challenging since emotions like embarrassment often take over."

Putting the embarrassment aside is key because it's important to have a group of people you can talk honestly and openly with about financial challenges. Without such candid support, it can be difficult at best to improve your financial health.

Purchase (or increase) life insurance and disability insurance

At the risk of sounding repetitive, as someone who's now responsible for another person's life, it's important to be sure your child is taken care of if something happens to you and that you're taken care of if you get sick, so that the financial burden doesn't fall upon your child.

"As a single parent, you're often the sole provider for your child's current and future needs. That's why it is so important that you protect your income-generating ability from potential disability and death," Tara Falcone, CFA, CFP and founder of ReisUp, tells Parents. "Disability insurance will pay you a portion of your income should you become too ill or disabled to work, and sufficient life insurance can provide for your child's basic needs until they become an adult, and even offer dedicated funds for their wedding, first house, and more should you pass away unexpectedly."

Open a permanent life insurance policy for your child

Since we're on the topic of insurance, here's one more step to consider: taking out a life insurance policy for your child while they're young and healthy. Doing so is a wise move for many reasons, says Adam Goetz, partner at Burstin & Goetz and father of four school-age children. Not only does this strategy provide protection for the child's lifetime in case any health conditions surface; it also creates cash value for other life expenses.

"The ability to lock in the current good health [rates for] your child...at birth is quite powerful," Goetz tells Parents. "These programs can start to build a savings pool that can assist with college or anything at all. It's a wonderful gift to give as they grow and start their lives."

Set up a 529 plan

Speaking of those debilitating college costs, it's never too early to open a 529 plan to help your child cover the costs of higher education. You might even consider doing so before your baby arrives. Create an account to which you (as well as friends and family members) can contribute money. You could even ask for contributions as a baby shower gift.

"A 529 plan is an educational savings plan that grows tax deferred and can be used tax-free to pay for college and or student loans," Leslie Gunterson, a licensed financial professional, tells Parents. "You can set up your child's 529 with as little as $10 per month and contribute as much as $15,000 per year for singles."

While opening a 529 plan is almost always a good idea, remember: There's no rush to start over-funding the plan, especially if you don't have other parts of your financial picture in order.

"You have more than 18 years to put money aside for your child's future education, and there are other things that will need to happen, financially, first—before you start putting your hard-earned money away in an account that offers little flexibility for withdrawals," suggests SoFi's Anastasio. "You'll want to make sure you have your other bases covered first, which means you have cash savings in an emergency fund, you've eliminated any high-interest-rate debt like credit card balances, and you're consistently saving for your own retirement—all three of these things should be true before you should feel any pressure to start putting money away for any other purpose."

Don't overlook the value of an UTMA

Yet another, even more flexible account single parents might want to consider is an UTMA or Uniform Transfers to Minors Act account. UTMA accounts are custodial accounts that allow a parent to transfer all types of assets—stocks, bonds, collectibles, and more—to their child, says Falcone, of ReisUp. What's more, assets can be transferred exempt from the gift tax (up to a certain threshold). In addition, any income the assets earn (such as dividends or realized gains on stocks) would be taxed at the child's income tax rate, which is usually lower than the parent's income tax rate.

"Companies like UNest allow you to set up an UTMA account in just five minutes, and you can even provide a shareable link to friends and family members so they can gift money to this account for birthdays and holidays," explains Falcone, who provides advice for military families and many single parents. "Once your child comes of age, complete control and spending discretion transfers to them."

Research government subsidy programs

Depending on where you live, there might be government childcare subsidy programs available for single parents that you can take advantage of if you have an income below a certain threshold. Start doing your research well ahead of time so that you know what's available and have completed applications before the hectic days after your baby arrives.

"In general, I think parents might overlook these types of government assistance programs because there's not a lot of awareness about them and they require an application," says Gilchrist, of Mom Money Map.

Create an estate plan

Of course, pondering your own mortality is the last thing you want to do amid the excitement of planning for a baby. But the importance of this step cannot be overstated. First of all, having an estate plan is important for all adults. But this is especially true for single parents. Ignoring this important preparation could leave your child in limbo in many ways, including financially.

"If something were to happen to you and there is no will in place, the court appoints a guardian for your child—and it may not necessarily be the person you would choose," Mary Kate D'Souza, chief legal officer for the website gentreo.com, tells Parents. "By creating your will, you can name your child as the beneficiary of all your assets, create a testamentary trust for their benefit, and most importantly, nominate your choice to serve as guardian. This is the person or persons that you know would love and take care of your child the best should you pass away."

It is not easy or fun contemplating this worst-case scenario while preparing to welcome a child, but by taking action now and creating your estate plan, you're providing important protection to your newest and most vulnerable family member.

The cost of creating an estate plan can vary widely, from a few hundred dollars to $15,000 or more. Some attorneys will charge an hourly rate for assistance with this task, while others charge hundreds of dollars per document. There are also now affordable online solutions where, for a minimal cost (in gentreo's case, for $99) you can create an estate plan.

Ask for help

One of the most important adjustments you'll need to make as a single parent (and hopefully you'll do this in advance of your baby's arrival), is learning to admit when you need help—and learning to gracefully accept that help. "While you may have been independent before the baby, having a child will challenge you to ask for help more often than you think," says Baxter.

That help, as it relates to your finances, can come in many forms: a friend providing free childcare now and then, allowing loved ones to contribute to a 529 or UTMA plan, or simply finding the courage to reach out for some sage financial guidance and advice. As a single parent, learning to do all of these things can be critical to your long-term success.

"Single parents often don't have room in their household cashflow for mistakes. There isn't a second check to rely on or another insurance plan that may be more affordable. Due to every expense coming out of their income, single parents may find it hard to increase savings accounts, pay off debt, save for retirement and fund their children's education early," says Baxter. The financial stress that single parents shoulder on a daily basis can often go unnoticed by others. But as the sole breadwinner, you will be keenly aware that every financial situation is dependent upon you to handle. Don't bear that stress in silence.

Finally, take things in stride

One last point that's worth always bearing in mind: No matter what the situation is you're facing, it will pass. "By preparing early, and considering the different financial and emotional contingencies, you will have better peace of mind and more mental and emotional energy to bond with your child," says Tayne.

As a parent, single or otherwise, there will be easy days and those that are more difficult. But keep it all in perspective, do your best to prepare ahead of time financially, and remember to enjoy the ride.