How to Prepare Financially for a Baby
The average American family spends six figures on their child in the first 18 years. This doesn’t include the cost of prenatal care, the birth, and lost income during maternity leave. Are you prepared financially for a baby?
Are you prepared?
Diapers, formula, childcare… the costs of raising a child add up fast. There are likely some costs you haven’t considered yet. Many new parents are unprepared for the expense, both short and long term. Our handy checklist can help ease the transition for new or expecting parents.
“A budget isn’t about restrictions. Having a plan allows you the freedom to make purchases without guilt and regret.” - Dave Ramsey, radio host
Being prepared financially for a baby not only makes it easier to adjust to a new budget, but it also reduces the fear and stress that comes along with any significant decision. Many new parents underestimate the true cost of having a baby. You don’t have to be one of them. By preparing now, you will be in a better position when your baby is born. Let’s talk about some of the ways that you can plan ahead to avoid stress later.
* Plan for parental leave
* Coordinate childcare
* Get your health insurance in order
* Create a will & purchase life insurance
* Start an emergency fund
* Create a realistic budget
Plan for parental leave
American maternity and paternity leave policies are notoriously stingy. The Family & Medical Leave Act entitles most employees to 12 weeks of unpaid leave. However, some companies offer paid and/or extended leave to mothers and fathers for the birth of their child. You should talk to your HR department to find out exactly what your company offers and what restrictions they may have. The sooner you determine what benefits you will receive; the sooner you can determine what steps you need to take to cover the income you might lose during this time.
If you don’t have childcare in place, you will not be able to return to work. This could be catastrophic if you do not plan ahead. It is better to explore your options now, rather than scramble at the last minute. Many childcare providers have a waiting list, especially for infant care. You want to be on that list ASAP.
You also need to know how much childcare will cost you. The cost varies greatly depending on your geographical location and the type of care you need. But you can be sure that it will not be cheap. Do not delay this important step. Call around, ask questions, schedule tours. You will be glad you got this crucial step out of the way early.
Get your health insurance in order
Prenatal care, sonograms, labor & delivery, hospital stays… having a baby is pricey. C-sections, complications, and other healthcare expenses can hike-up the cost even more. You do not want to get a surprise medical bill. Be sure to review your current plan and talk to a representative if you have any questions. Don’t have insurance? Now would be the time to get some. Local women’s clinics and state service departments will assist you in getting coverage.
It is equally important to know the deadline for adding your new baby to your insurance plan. If you miss the deadline, you will be on the hook for medical expenses until the next enrollment period. Babies require a lot of medical care in the first year. Do not miss the deadline! Speak to your insurance provider to confirm any important dates and plan to enroll your baby as soon as you get home from the hospital.
File a will & purchase life insurance
Nobody wants to think about the possibility of their untimely demise but being prepared for the worst can alleviate the stress and confusion that would ensue in the event of your death. Most lawyers charge a flat fee for will-filing services if you choose to forgo legal advice. Be sure to have any documents notarized, store copies in a safe place, and let your loved ones know where to find them. This document will name the persons that you would like to be guardians of your child and dictate specific instructions for your funds and assets.
Life insurance is another way you can provide for your baby in the event of your death. Term life policies are inexpensive and will ensure that your spouse, partner, or chosen guardian will have the funds to care for your child. You may have access through your work, or you can explore options on your own. There are many insurance products on the market. To get the best option for you, be sure to work with an insurance provider or financial advisor that you trust and don’t be afraid to ask them to clarify any points of confusion.
Start an emergency fund
Many families are financially unprepared to cope with emergencies. Whether it be a job loss, medical bill, or any other number of emergencies, the last thing new parents need is more stress. You can help to mitigate this risk by setting up an emergency fund for your family. You may not have a lot of extra cash, but you will be surprised at how fast your savings can grow. Look for interest-bearing savings accounts that have no fees, some banks and credit unions offer special promotions to checking account customers. Next, decide how you will fund the account. You can opt to automatically transfer a portion of your paycheck into your savings account if you want an effortless option. You probably won’t miss the small amount you are depositing every week.
You may be tempted to open a line of credit to cover emergency expenses. This is a viable option for people who have a history of using credit responsibly. Just be sure that you only use the credit as intended; for emergencies. And don’t use more than you can realistically pay back. Interest and fees could make a bad financial situation worse.
Create a realistic budget
Regardless of whether you act on any of the suggestions listed above, the most important thing you can do is create a realistic budget. Be honest about your current spending and identify areas where you could scale back to make room for new expenses. Find out the cost of diapers and formula in your area so that you can get an accurate idea of how much cash you will spend on everyday items. Visit second-hand stores and mommy-swaps in your community so that you can see how much you could save by buying used clothing, gear, and toys.
Remember that you are not alone
We hope that you feel more financially prepared for a baby by now. We always love to hear your thoughts and want you to know that you are not alone. Please leave your thoughts in the comments sections or visit us on Facebook to hear from nervous new parents just like you.
“Without my kids, my house would be clean, and my wallet would be full, but my heart would be empty.” – Anonymous