How to Financially Prepare For Baby
Having a new baby is an exciting time of your life, but it can be incredibly overwhelming. Whether it’s your first time to become a parent or the fifth time, a new baby always brings a fresh surge of emotions. You feel protective and wanting to provide only the best for them.
Between morning sickness, kicks, and the urge to buy everything cute, you’ll also have to start considering the cost of pre-natal check-ups, delivery, and post-partum health care. After which, you’ll want to know what your working set-up would be, how to figure out childcare and revamp your budget to now include the needs of the new baby.
Indeed, a new baby will bring new financial implications. Along with the joy of being a parent, you’ll now have to take on the responsibility of financially providing for your now bigger family. There are numerous factors to consider with the coming of the baby and you have to lay down all the cards on the table to see which are the best solutions for you.
The Cost of Raising a Child
Let’s face it, having a new baby brings a hefty price tag.
According to the US Department of Agriculture, the cost of raising a child from pregnancy to adulthood (18 years old) is more than $245,000 in 2014. That price does not include toys, college education, after-school classes, private schools, and other things.
Even before your child turns one, you would already have spent around $20,000 for diapers, feeding, clothing, child care, and health. It’s an amount that could buy you a second-hand vehicle or down payment for a home.
Parenthood can indeed be a financially draining moment and it doesn’t end when your child learns to walk or talk. It’s an ongoing commitment and responsibility that sometimes go far beyond the child’s eighteenth birthday. And as parents, it’s a natural instinct to try to give what your child’s needs and wants.
Your Top Priorities Have Changed
One thing is for sure: having a child is priceless! Once you learn about the pregnancy, you’ll develop a stronger instinct to place your upcoming baby towards the top priority. You’ll want to make sure that he gets clothed, fed and attended health-wise.
Your baby needs a lot of physical, emotional and financial support. As parent, you now have to take on the responsibility of providing these needs to your child.
Fortunately, there are a number of ways that can help bring down the cost of carrying and delivering a baby out into the world. As early as possible, you need to fully prepare for the coming of your baby, physically, emotionally and financially.
Savvy Steps for a Financially Prepared Pregnancy and Child-rearing
Pay Off As Many Debts As Possible
You will start incurring baby-related costs as soon as you know that you’re pregnant and still having to deal with old debts will only add unnecessary stress to your happy time.
Clear as much debt as you can, especially those with high interests. You can leave out debts with low interests and pay only the minimum, but make sure that you get rid most of the larger debts first.
The main reason why you want to start a clean slate is because your baby will bring in new expenses and you want to keep your financial house in order. Once those costs start coming and you’re still dealing with debts, it will make things even more difficult for you. Thankfully, you’ll have several months to do this, or even years if you plan your pregnancy properly, so you still have ample time to minimize your debts.
Once you’ve removed most of the larger debts, try to stay way from making new debts. Make purchases with cash, save up an emergency fund, and only take new loans when absolutely necessary. Parenthood becomes easier when you take away as much financial stress as possible. You also get to take care of your baby in peace without worrying over credit card payments and loans. You’ll also have more monetary margin and wiggle room for other important and unexpected expenses.
Kids will keep incurring costs regardless if they’re newborn, toddler or school age and wiping away debt is a good start to move ahead financially.
Budget for the New Baby
First, having a budget is necessary for a manageable financial life no matter where you are at life. Whether or not you’re considering to start a family in the near future, you should already have a good working budget in place. Second, you must take into account the cost of your new baby into the budget.
Little costs will keep popping up, especially during the first year of your baby’s life. In order to anticipate these costs and prepare for them, look at your current budget and list down all the possible recurring and expected expenses: formula, diaper, doctor’s visits, vaccines, baby clothes, and many others.
Then make the necessary changes to make sure that your baby will get everything he needs. This could mean cutting back on other things like entertainment, going out to eat, and any subscription based goods or services. The new budget will also allow you to prepare should you and/or your spouse need to take an unpaid leave.
You’d also want to figure out the living set-up as early as possible. Will you need to add an extra room or move to a bigger house or upgrade your transportation? Those big decisions will certainly impact your finances. And the best way to rein in every expense is to strive to follow a budget.
It’s often easier to meet unexpected expenses when you know where you can pull money in times of need. If you’re running short on the medical and health care front, consider cutting out your cable and canceling your gym membership. You may also reduce the budget for entertainment if that means being able to provide your baby’s basic needs.
After drafting the plan up, do a trial run of living on a budget. For instance, if you’re going to be on an unpaid maternity leave for a couple weeks, your household income will certainly go down. But if you try to practice living on one income a couple of months before the baby arrives, it would be easier to adjust later on.
Maximize Health Insurance Benefits
Your health insurance will play a crucial role in keeping the costs of having a baby before, during, and after the delivery. With that said, you must know and understand every detail in your policy to anticipate how much coverage you truly have and what might be your out-of-pocket expenses will look like.
If you’re working and/or your spouse does, there’s a good chance that your employer provides health insurance that may cover your pregnancy and childbirth expenses. It’s worth looking into these policies to check which gives the best coverage and make the switch promptly.
On the other hand, if you’re not employed or self-employed, consider getting a private health insurance policy. For those who are not covered with an employment or private health insurance, the Affordable Care Act is also a good option.
The bottom line is, you need every help that you can get for your pregnancy, delivery, and post-partum health needs and getting a health insurance policy is one step to the right direction. Just make sure that your preferred clinic and doctor are within the network of your insurance, or else it will only defeat the purpose of getting insured.
Shop early for health insurance plans so you can compare notes and find the best policy for you.
Sign Up For Short-Term Disability
Now that you anticipate a new member joining your family soon, you must also expect that your expenses will also increase. And if you’re going to be on leave for 2 months without pay, meeting those expenses will become a challenge.
Another great idea to help mitigate the costs of having a baby is getting a short-term disability insurance. This policy will come in handy for when you go on unpaid maternity leave. The insurance will pay you some or all of your income while you’re out of work.
Check if your employer provides a disability insurance that covers pregnancy and childbirth. If not, you can always opt for private insurance policies. Pick a suitable coverage that will adequately cover the expenses in the coming months. Also, make sure that your chosen policy will not just cover pregnancy, but also possible complications.
Consider Life Insurance
Starting and expanding your family can bring in a lot of uncertainties. Since you’re responsible for a new life now, you want to be able to protect and secure your family in case of the worst. With that said, considering a life insurance policy for you and your family will prove to be a worthwhile investment.
You can choose between a permanent life insurance or a term insurance. Both has its advantages and drawbacks, but if you want to already have a coverage in place with a limited budget, you can start with a 20-year term insurance. You can always switch later on when you decide that one type is more suitable than the other.
According to Parenting.com, it is wise to get a policy right after the child is born although you should have already considered it even before starting a family. Oftentimes, the policy takes effect from one to three months after childbirth. Also, it’s often better to pick a policy that pays the beneficiary equal amounts over time than one that pays a lump sum at one time.
If you already have a life insurance policy, it is also great to update the list of beneficiaries and include the latest member of the family. This will give you a good amount of peace of mind and security that your family will not be left desolate in case of you and/or your spouse’s loss.
Shop After Your Baby Shower
Once family and friends learn of the wonderful news, they’ll get as excited as you in buying stuff for your baby. Even your soon-to-be mommy and daddy hormones will prompt you to dreamily gaze at cute onesies, mittens, and pink crib early in your pregnancy. But pace yourself, hold your purse, and forego shopping until you’ve had your baby shower.
First of all, the baby shower will help cut significant costs on baby things and gear. Consider holding a registry so that people know exactly what you want and need. Additionally, the registry also allows a number of friends to chip in for big-ticket items like a stroller and car seat. Lastly, it prevents duplication of things. You don’t want to end up with nine pillows and 12 pairs of mittens, don’t you?
Also, if you want to buy gender-appropriate things, hold off shopping, and baby shower until you’ve had an ultra-sound. This is especially important if it matters to you that your baby girl wears all pink, not powder blue. And if you want to know the gender until you’ve given birth, ask friends and family to buy gender-neutral things instead.
Don’t get ahead of yourself and get carried away with the excitement. You’ll have to buy things for your baby sooner or later, but you want to be practical as well. The baby shower is a great event to bring down these costs at the same time allowing loved one to partake at your happiness.
Apart from waiting for the baby shower before you do your shopping, it also pays (or save) a lot to shop smartly. There are just a few couple of things that your new baby needs on his first few weeks of life. You can add some more along the way once you get those basics out of the way.
These are some of the top of ways to save money and buy cheap and quality products.
You don’t have to spend top-dollar on every baby item on your list. In fact, you only need to spend on a few necessary items, so don’t go overboard. You’ll just have to prepare newborn clothes, feeding bottles, formula (if you aren’t bottle feeding), nursing pads, diapers, and wipes. You don’t need a fancy wipes warmer or stroller with fancy LCD control, especially if you can’t squeeze them into the budget.
Additionally, look at thrift stores and consignment shops for cheap bargains. Babies grow up very fast and before you know it, those baby shoes and onesies will no longer fit. Your baby probably wouldn’t know or mind if his clothes are not brand new. Your baby will still have a fun and joyful childhood whether he wears brand new Carters every couple of months or bargain outfit from a nearby thrift store.
Get Second-Hand Quality Items
You must remember though that certain things like a car seat and stroller are best purchased brand-new to ensure quality and standards. If you want to spend so much on these things, consider buying or borrowing a gently used one from someone you know, say a sister or close friend to at least be sure of the item’s condition.
Friends and relatives might also be willing to give you hand-me-downs. Don’t be shy to accept them especially if the items appear to have been well-cared for. You want to save money and cut down costs every possible way so you can stash more money to your savings and emergency fund, and being practical with the baby’s things is just one way to do it.
If you already have the intention to buy second-hand baby gear, network with other parents who are one stage ahead of you. Your cousin might have a one-year old baby who will soon outgrow the use of his crib or changing table. Hint early that you’d appreciate the alert once she’s ready to let go of her baby’s gear.
Buy in Bulk
Don’t let those new hormones fool you into shopping at retailers and department stores. It’ll trick your eyes into thinking you need everything they can see. However, focus on the must-haves and stock up on them to save on costs. For instance, buying diapers and wipes in bulk will give you more savings not just on the item, but also from making multiple trips to the store.
Consider clipping, downloading, and printing coupons to use them in conjunction with sales and promos to get huge discounts discounts. Look at manufacturer websites to see if there are coupons or promo codes you can use. These coupons will come in handy for various non-perishables like baby shampoo, baby wash, disposable diapers, and more.
When you’re out shopping for your soon-to-be bundle of joy, don’t let your emotions to get the better of you. Sure, you’ll want to get only the best for your baby, but really consider if these are the most practical options. Set a limit to your budget so you don’t overspend and don’t buy everything at one. Spread out your shopping trips across the months of your pregnancy to make it easier on your finances.
Save For Emergencies and Medical Bills
You’ll have doctor’s visits and other emergencies while you’re pregnant and after delivering your baby, especially when you take a pay cut (due to unpaid maternity leave). While these appointments will spread out after having your child, you still need a cushion for unexpected expenses.
The best way to feel secure about your future is to build an emergency fund before you get pregnant. In fact, it’s sound financial advice regardless of where you are in your life (planning to have a baby, switching jobs, about to get married, etc.) An emergency fund will help your family stay afloat when you need to take care of other emergencies like fixing your car or having your roof repaired.
To come up with a solid emergency fund, look at your budget and figure out your monthly expenses. Total them up and multiply the amount by at least three. This should be the minimum amount that you always have in your emergency fund. However, the more you save, the better. You’ll have a solid cushion to fall back on when you need it.
Next, remember that your baby might require multiple visits to the doctor. So apart from an emergency fund, have a medical fund in place. If you already have good health insurance coverage, your out of pocket, co-pays, and deductibles will be affordable, but that will vary on the type of insurance and amount of coverage. Regardless, you’ll want to have money set aside for medical emergencies just in case your child needs to be rushed to the ER.
Find a Local Pediatrician
Don’t put off finding a pediatrician. Your baby will need to be seen within 48-72 hours after being discharged from the hospital and you should be spending time with your bundle of joy rather than shopping around for pediatricians. Honestly, you should have your pediatrician picked out before you’re 6 months along so 1) you don’t have to travel a bunch in your final trimester and 2) if you have any complications that puts you on bed rest or forces you to have an early delivery for the safety of the baby (or yourself).
Ask around for recommendations on local pediatricians from your family and friends. When looking for the right pediatrician, make sure that he/she is qualified, reputable, and is covered by your health insurance. This way, you can be sure that most health needs of your baby will deductible through your policy and lessen the amount of your out-of-pocket expenses.
Get a good grasp of what’s covered in your health insurance and ensure that most, if not all, of the pediatrician’s services are deductible from your policy. Check ahead with the doctor and clinic, then check again with your insurance company.
Talk to Other Moms
Everyone’s pregnancy is different (don’t forget that), but it still pays to seek advice from experienced moms for certain things like what to pack for your first new born, where to find cheap baby clothes, and what brands of products worked for them.
If you’re having a baby for the very first time, you might be tempted to buy everything regardless of whether they’re useful or practical. You can get carried away by the look of a product and spend more than you need to.
Bring your mom or a close friend (that’s also a mom) during your shopping trips to get a second perspective. Like you, she will only want want what’s best for your baby, but her experience taught her how to pick the right products and save up on costs. Focus on your baby’s needs first and if there’s still wiggle room for luxuries, that’s when you pick them up.
Figure Out Your Childcare Now
Childcare is an important discussion that you and your partner should tackle in as early as possible. You want to give your baby time and attention, but your maternity and paternity leave won’t be enough.
What will you do once the leave is up? Go back to work or stay home with the baby? Both options will have significant impacts on your finances.
Staying Home with the Baby
If you plan to stay home with your baby, you will have the opportunity to breastfeed him longer and cut down on costs of formula. You also won’t need to hire a nanny or put the child in day care.
If you’ve figured that you’re going to stay home with the baby once your maternity / paternity leave is over, you should be sure to have a one-income budget and have slowly acclimated yourself to it a few months before childbirth. This way, you’ll be used to your lower overall income and still be able to manage your finances.
Daycare or Getting a Sitter
On the other hand, you might want to go back to work, but you should keep in mind that daycare can cost around $1,000 (or more) depending on the location. That means you’ll have to subtract the cost of day care and bottle feeding from your income.
Alternatively, you can get a sitter or nanny. These can cost less than daycare, but you’ll need a flexible work schedule for it to work.
Can you and your spouse take on shifting work schedule so that when one works, the other is left behind to care for the baby? This can be tiring set-up initially, but it’s also worth considering especially if you can’t or don’t want to get a sitter or put your child to day care. Or, you can ask a relative to watch over the baby while you work then go fetch him as the day ends.
The thing is, child care is a contentious issue that can present significant changes in your income and expenses. There is no standard for child care for each family situation is different. You just want to settle this subject as early as possible so you can already decide what’s best for your family later on.
Start A College Fund
Your baby will grow up quicker than you think. You’ll blink and they’re in high school. Before you know it, they’ll be taking college entrance exams and when you have a baby on the way, the best time to start thinking about college is as early as possible.
The soaring costs of education means that college will cost more by the time your child is ready to start their freshman year. It isn’t economically possible for your kid to pay their own way through college anymore so having a college fund set up is legitimately the only way for them to continue their education at a university without burning your own household budget.
The College Board reported that college costs almost $19,000 for a 4-year in-state college. Out-state-college of four years costs more than $32,000 while private college of four years costs more than $42,000.
If you expect your child to attend public college, try saving around $250 each month or $500 for private college. That way, you’ll already have sufficient funds when your child is ready to pick their major.
Another great option to get started with the college fund is to get a 529 plan which not only provides tax deductions but also grows tax-free. Instead of buying fancy toys, you can ask friends and family to contribute to the child’s college fund instead.
Don’t Forget Your Retirement Goals
In the midst of preparing for the baby and feeling excited about the new addition, you and your spouse might forget that you also have to take care of yourself when you’re old. Sad to say, your baby will only be a baby for a few years and will soon grow into adulthood. He will figure out a way to live and sustain himself and might need any more financial help from you once he’s stable.
While it’s important to prioritize the needs of your baby, you also can’t neglect your own needs when you retire. Don’t take your retirement goals to the back burner. Fund your retirement so that you can stop working in due time and still live comfortably without having your child to support you when you’re old.
Having a baby will change your life! Do the math early and financially prepare for the baby on the way by determining all the best options for your situation. You will stress less and feel happier if you know that your financial house is in order. The new baby will certainly impact many aspects of your finances, but the price will always be worth it.