How to Prepare Financially for a Baby

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Are you and your partner expecting a baby? Or maybe you are just thinking about it. Either way, to say a baby creates a major shift in lifestyle is an understatement. Having a baby will impact not just your sleep schedule, but your daily routine, how you spend your free time, and of course, how you spend your money. According to a 2017 USDA report, the average middle class family will spend on average $17,500 raising their child till age 18.(1) This rate of spending equates to about $300,000 over the course of their childhood. Even more mind blowing, is a survey conducted by Policy Genius, 42% of parents did NOT feel financially prepared before they had children. Even of the 58% who said they did feel prepared, 23% said they lacked the key financial plans such as a college savings plan and private life insurance. (2) The reality is that it’s very expensive to have a child, regardless of your situation. Therefore, preparing financially before the baby arrives will be key to ensuring you not only have enough for the baby’s needs, but that you are still caring for your own.

Below we’ve detailed five things you should do before you have a baby to stay on track financially and provide your family with the best shot at being financially stable.

1. Check on Your credit Score

Assuming you may want to purchase a larger living space in the future as you expand your family, you will most certainly want to check your credit score. If you’ve demonstrated good credit throughout the years, then your job from here on out is to just keep that up. If however you have outstanding debt, shaky payments, and a high credit utilization rate, then you’ll want to work on cleaning this up before baby arrives.

2. Create a budget

Another very basic but important step is budgeting. How your money is spent now, won’t be the same as when the baby arrives. The baby will add a variety of items to your monthly spending including diapers, formula, clothing, etc. This is the time to do some research and figure out what your baby will need and what that will cost each month. Also, bear in mind that your lifestyle will likely change. For example, the money you spent on dining out may decrease as you find yourself with less time (or energy) to go out so not all costs added to your budget will be incremental. Childcare especially tends to add a significant amount to your budget. According to a care.com survey, in 2020 the average cost of a nanny per week for a single child was $612-that’s over $2400 a month! (3) Many parents find themselves facing sticker shock when presented with a new expense that’s equivalent to their mortgage. However, planning this ahead of time and familiarizing yourselves with the reality will make this easier to handle when the time comes and better prepare financially for the baby.

3. Plan your maternity leave

If you or your partner plans to take any time off, you might need to adjust your budget accordingly. The Family Medical Leave Act of 1993 entities eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. (4) The birth of a child and care of a newborn within one year of birth qualifies you for this benefit. Some employers provide more generous maternity leave policies involving full pay or a % of your salary for a specified number of weeks. Make sure to check with your employer on your benefits. If your employer doesn’t offer any additional leave but you still want to take maternity leave, be prepared to live with a reduction in salary as the FMLA entitles you to unpaid leave.

4. Confirm your healthcare coverage

Even before the baby is born you’ll want to plan for the cost of delivery. Yes, in America, it does cost money to deliver your baby in a hospital-even with insurance. Between 2016 and 2019, families with private insurance paid an average of $3,068 in our of pocket costs for maternal and newborn hospitalization. (5) These costs may increase with a cesarian. After the baby is born you will want to put your child under either your insurance or your spouse’s. If your plan is under your employer, you’ll be able to change your plan right away since having a child qualifies as a major life event. After your child is born, he/she is covered under your plan for 30 days as an extension of your policy. One very important thing to consider if the “Birthday Rule”. If both you and your spouse are covered through your employers insurance, your baby’s primary coverage will come from the plan of the parent whose birthday (date and month) come first in the year. The other parent’s insurance will serve as secondary. Consult your health insurance provider to understand how your costs will increase after the 30 day window. However, you need to enroll your child-this will not happen automatically.

5. Create a Debt Repayment plan

Caring for a child is stress enough without the stress of debt looming over you and your family. Before the baby arrives, do your best to clean up your debt. Many people find this counterintuitive as they think it’s better to be sitting on significant cash to pay for baby items. However, the reality is that it’s more important to have a steady stream of income vs. just sitting on a pile of cash. You’ll still need cash to pay for things like a crib, car seat, and a few weeks of diapers (in addition to a few other essentials). Paying down debt however will free up cash later on and will relieve you and your family of additional stress.

Having a baby is an exciting time. Don’t let the stress of finances get in the way of precious bonding time and prepare financially before the baby arrives. Remember, probably one of the most important things you should do to prepare is to have consistent and productive talks with your spouse/partner regarding finances. You’re both in this together and the best thing you can do for your new family is to act like a team. Not sure how to even broach the subject of finances? Start by downloading our free couples worksheet and check out How to Talk to Your Spouse About Money to help you get started.

Sources:

https://www.parents.com/pregnancy/considering-baby/financing-family/a-nine-month-plan-for-getting-your-familys-finances-in-order-pre-baby/
https://www.fatherly.com/news/nearly-half-of-parents-admit-they-werent-financially-prepared-to-have-a-kid/#:~:text=Sixty%2Dfour%20percent%20of%20married,than%20women%20(53%20percent).
https://www.care.com/c/how-much-does-child-care-cost/
https://www.dol.gov/agencies/whd/fmla
https://www.usnews.com/news/health-news/articles/2021-06-17/10-000-what-new-parents-might-pay-for-childbirth-even-with-insurance