Bringing a baby into the world is exciting, scary, fun, stressful, and just about every other emotion in the book. Everything is about to change forever, and that anticipation of change is often pretty overwhelming for new parents to-be...believe me, I was right there a couple of years back myself. Suddenly, nine months seems like the blink of an eye when it comes to preparing for the growth of your family. Not only can you expect your life to change, the details of your finances and everyday nuances will immediately become drastically different.
To help you prepare for this exciting time in your life, we’ve identified a few important steps to take when planning for a baby before you welcome your new child into the world.
1. Understand Your Employer’s Maternity and/or Paternity Policies
Begin your planning process by reviewing your company’s leave policies and see if they provide paid time off for you and/or your spouse. You’ll need to confirm how much time you can take – including unpaid leave, sick days and vacation days.
If you’re in a partnership, outline a plan for who will take time off and when, as well as if that time will be taken together or separately. If your employer doesn't offer maternity leave, either paid or unpaid, speak with your human resources representative to ensure you understand all the options available to you.
2. Review Your Life Insurance Policy
As a new parent, you’ll want to revisit your life insurance policy, or policies, to make sure your beneficiaries are up-to-date and you have enough coverage. You may also want to assess other financial goals, such as those that address saving for your child's education, eliminating debt, as well as any salary changes you might expect.
A new child, along with other circumstances, may be a good reason for you to consider increasing your coverage and protecting you family against any loss of lifestyle in the event of early death, especially if one parent plans to leave the workforce.
3. Insure Your New Baby’s Health
Within 30 days of your child’s birth, review the health insurance policies of both parents (if applicable), and make sure your baby is added to your preferred policy. Take a close look at your coverage for deductibles, co-pays, vaccination schedules, and appointments. After all, your baby will require frequent visits to a pediatrician, especially during their first year.
It’s important that you’re comfortable with your child’s care and with a referral from your doctor, family, or friends, you’re much more likely to feel at ease. Selecting a pediatrician from your health insurance provider’s network is also recommended, in order to receive the best coverage.
4. Review Estate Planning Documents
The time that you're preparing for a new baby is an ideal time to organize your estate documents to make sure they reflect your wishes. And if you haven't done any estate planning, this should now be a high priority. Drafting and executing your legal documents should include directives for guardianship, a living will, and financial and medical power of attorney.
If you have trust documents in place, it’s important to review them to make sure your beneficiaries are up-to-date. Once reviewed and executed, these documents should be safely stored in a secure location, along with your baby’s Social Security card, birth certificate and health records. Lastly, remember to send copies of your estate documents to your executors to have on record. Be sure to ask your estate planning attorney if you have questions about this.
5. Try To Anticipate Any Substantial Purchases
A growing family often means the need for a larger home, a more family-friendly vehicle, or other big purchases. Planning for these expenses and developing a savings strategy can help ease any financial concerns this may cause. Having more confidence in your budget will allow you more time to explore solutions that fit your family’s needs.
If you don't plan to purchase a new home, the addition of a new baby means you'll need to make other preparations, such as baby-proofing the house, deciding where to put changing stations, and selecting the location of your bassinet or crib. Look over the larger items on your registry – including car seats, strollers, baby monitors, and cribs – as these will be the items you’ll want to have in place before the baby comes.
6. Construct a Budget
Having a budget is always a great way to to meet your specific financial and lifestyle goals. Being prepared for the expenses you will undoubtedly experience now and in the future will help you from being surprised or caught off guard.
According to the most recent data from the U.S. Department of Agriculture, the average cost to raise a child until the age of 17 was $233,610 in 2015.1 This includes the cost of housing, food, and childcare, but does not include a college education. Putting as much detail as possible into your budget – including recurring items such as diapers, wipes, clothing, lotion, soaps and activities – will help you prepare for the big-ticket items down the road.
Childcare is another important line item that should be factored into your budget. According to Care.com, the average cost of daycare for toddlers is approximately $211 per week, but prices can often very. Nannies can be even more expensive at roughly $596 per week.2 Also, keep in mind the potential impact of lost wages and benefits if even one parent plans on staying home after your child is born.
7. Establish an Emergency Fund
If you don't have an emergency fund, this is a great time to make sure your family is prepared for the unexpected. While many people feel that three to six months of essential living expenses should be saved in an emergency fund, other families are more comfortable with having six to twelve months prepared. Factor in your current spending habits and set aside a comfortable amount that will accommodate your newly growing family.
8. Consider Your Baby’s Savings
When deciding how to save for your child’s future, there are a number of details to consider. Education is often one of the more looming costs. In fact, according to the College Board, a moderate budget for an in-state public college in 2019-2020 averaged $26,590, whereas a moderate budget at a private college averaged $53,980.3 These include tuition, housing, meals, books, and associated fees. Thankfully, 529 savings plans are now flexible enough to be used for K-12 education, as well as college costs.
For parents looking for a tax-advantaged savings account that isn’t limited to education costs, a custodial account can be set up under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). These accounts protect the minor from the tax consequences often associated with assets up to a specified value, until the child reaches legal age.4 Identifying goals for your child moving forward will be helpful as you develop a monthly savings goal to support your wishes.
While bringing a child into the world can present a number of new challenges, you can face them one by one in order to help ease any burden once your baby does arrive. From the first nine months through the rest of their lives, there will be endless financial decisions to be made in order for your family to find success and happiness.