Every time I look at Facebook, there’s another cute newborn baby picture on my feed. And as my husband and I come up on eight years together, it’s something we’ve begun to discuss as well. When should we try to have a baby? And how can you prepare your finances for a baby?
We know there will never be a perfect time. But as financially savvy people, we want to do what we can to make sure we are financially sound before we start a family. Raising a child is expensive! According to the USDA’s “Cost of Raising A Child” Report, a child born in 2013 will cost about $245,340 in today’s dollars by age eighteen.
So I asked a few of the financially astute parents I know about how to prepare your finances for a baby. Here are the top four things they suggest to prepare your finances for a baby.
An emergency fund is an important part of the financial picture for any family. But when anticipating a major life and medical event like having a baby, having savings on hand becomes even more important. There are many possible expenses, so it’s hard to know what it’s going to be, but you’ll be glad you had money available. It can take time to put so much away, so start now.
Catherine Alford, financial writer and mom to toddler twins, tells parents to expect the unexpected. “We definitely planned on only having one baby, but we got twins! Then, our twins had NICU time, and our daughter had health issues that required her to wear a breathing and heart rate monitor for 12 weeks after she was born. It was so, so important that we had a $10,000 baby fund, but we blew right through it. I hate to think of what would have happened had we not saved anything at all.”
When establishing your baby fund, think beyond the deductible and co-pays. Michelle, freelance writer and mom to a 3-month old, recommends that parents “add extra padding to your baby fund for any emergency you may or may not have during the first month of their lives. When we ended up delivering 2 months early, we were prepared to pay for the birth, but not for the hidden expenses like driving back and forth from the hospital, the loss of work time, or the eating out we needed to do to stay sane.”
If you think you want to have a child, prepare in advance for the costs. Do you want to have a parent stay at home? If so, start living off one salary now to make sure you can do it. Are you planning to send your child to daycare? If so, start setting aside future daycare costs into a savings account. Daycare can often cost as much as a mortgage. Prepare your finances for a baby by simply living on less today.
Sarah Mizell, financial advisor at Valued Retirements and mom to a toddler, advises parents to make important long-term decisions like quitting a job in advance instead of in the last few sleep-deprived hours of maternity leave. “Whether you want one parent to be the primary caretaker, or you decide daycare is your route, living on significantly less than you make now leaves the margin to take a pay cut or add daycare costs.”
3. Understand Your Employer Benefits
When you think to prepare your finances for a baby, you don’t immediately consider your employer benefits, but it is incredibly important! Before the delivery date, you’ll want to make sure you understand three aspects of your benefit plan:
- the parental leave policy
- health insurance
- and disability insurance.
If you’ve worked for your company for over a year, and your company has 50 or more employees, you qualify for parental benefits according to the Family and Medical Leave Act (FMLA). Both parents are allowed to take up to 12 weeks of unpaid family leave after the birth of a child. Your employer might provide additional parental leave beyond this minimum.
You’ll also want to review your health insurance options to make sure you’re on the best healthcare plan for pregnancy and childbirth. Consider prenatal care, birth options, and neonatal care. How expensive are the co-pays and deductibles? Do you like the available childbirth options?
By knowing the details of your health insurance plans, you’ll be prepared to create the birth you want. Kirsten, a freelance financial writer and mom of two, wanted to work with a midwife at a particular birth center in town, but found it wasn’t covered under her health insurance. “I didn’t let it go. I asked where the closest approved center was, and it was 200 miles away! Armed with that, I filed for an exemption and it was granted. Don’t take no!”
If you decide to switch, you’ll have to wait for the open enrollment period to change plans. At a minimum, you’ll be able to switch plans when the child is born, as having a baby qualifies you for a specific enrollment period outside of traditional open enrollment.
Also, prepare your finances for a baby by looking at your short-term disability insurance options. The FMLA does allow birth mothers to receive some amount of disability income if the company pays disability benefits in other circumstances. Some employers also offer separate short-term disability policies, which can be a great deal if you plan to get pregnant within the next few years. You’ll need to plan ahead for this one; pre-existing conditions like pregnancies are often not covered within the first few months of the policy.
If you want to start a family, make sure you protect your newborn by having your affairs in order. With a family depending on you financially, life insurance is now a must. You’ll also want a will if you don’t already have one. When you prepare your finances for a baby, don’t forget that you need to consider the present, the near future, and the distant future.
Katie Brewer, CFP(R) of Your Richest Life and mom to a five-year old daughter, advises clients to review their life insurance and estate planning every time they have a change in their family. “You usually need more life insurance after the birth of a child. If you already have a will in place, it may not include provisions that address who will raise your child.”
By planning for the arrival of your new child, you can focus on the things that matter most.
Are you thinking about a family? Did you prepare your finances for a baby yet?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.