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Growing your family is one of the most rewarding experiences in life, but it can also be one of the most expensive. Let’s explore some tips for planning for a baby financially so you can keep your finances on track during this exciting time.
Tips for Planning for a Baby Financially
We understand that it can seem impossible to think about the big picture and your future finances when you’re sleep-deprived, juggling feeding schedules and naps, and cuddling your new bundle of joy. So, it’s important to prepare ahead of time as much as possible. Here are some financial planning strategies for soon-to-be parents:
Understand What Your Health Insurance Covers
It’s time to take a deep dive into your health insurance and what it covers. Even with health insurance coverage, you can still owe thousands of dollars in out-of-pocket expenses accrued throughout hospital visits and childbirth.
The average health care cost of pregnancy and childbirth ranges from $460 up to $8,224 depending on your plan’s benefits. It's important to thoroughly understand your health insurance policy, other options that are available to you through your workplace and the associated pregnancy care and childbirth costs for each plan.
When you’re looking through your health insurance plan and talking with your provider, make sure you’re getting answers to what each of the following costs:
- Copays for prenatal visits
- Coverage for prenatal care
- The deductible and how it’s applied
- Coverage for possible hospital or neonatal intensive care unit (NICU) stays
- Coverage for additional providers, such as an anesthesiologist
- Coverage for a midwife, home birth, doula or lactation consultant
- Coverage for mental health services
While you’re exploring your health insurance options, it may also be a good idea to invest in a health savings account (HSA) or a flexible savings account (FSA). An HSA takes pre-tax dollars out of your paycheck into a savings account that can be used specifically for health purposes.
An FSA offers a few different options, including one for health care expenses and one specifically for dependent care that will help you pay for childcare while you work. However, it’s important to note that you can’t have both a health care FSA and HSA.
Pay Down Your Debts
If you’re able to, it’s a good time to try to pay down your debts in order to avoid juggling credit card and loan payments once your child arrives. To pay down your debts, evaluate your budget and how much you have free each month after bills and necessities are paid for, and then consider how much of this you can afford to put into a debt payment.
Build Up Your Emergency Savings
Having emergency savings is important no matter what your situation is, and it’s even more important when you’re growing your family. An emergency savings provides a financial safety net against unexpected expenses such as medical bills.
Ideally, you’ll want 3–6 months’ worth of living expenses in the emergency fund. However, this depends on your unique situation and comfort level. For example, you may feel more comfortable at the higher end of that range to ensure you’re prepared.
Plan For Parental Leave
Check with your employer to understand what their parental leave policy is. Some employers may offer paid or partially paid parental leave, but they aren’t required to do so. Another option that may be available to you is the Family and Medical Leave Act (FMLA), which entitles you to up to 12 weeks of unpaid leave with continuation of your health insurance coverage.
Plan For Returning to Work
Discuss with your partner how you’ll return to work. This includes adjusting work schedules, seeking childcare or working remotely if that option is available to you. For example, if you and your partner work four days a week, you may want to try to have different days off from each other so you can reduce your need for childcare.
Update Your Budget
Updating your budget will depend a lot on what your baby needs, how much you have to spend, and what you received as gifts from family and friends. For example, you’ll likely receive a lot of clothing and toys as gifts, but formula and diapers may be necessary items in your monthly budget.
Start a College Fund
It can be overwhelming to start a college fund for your child when they haven’t even learned to roll over yet, but it’s never too early to start preparing for your child’s future. College tuition is expensive, so it’s important to think about what you can do to help your child start off on the right foot in the future.
Get Financially Prepared for Your Bundle of Joy
Having a child is incredibly rewarding, but the impact on your finances can be quite daunting. Learn more about how to manage your finances with our resources for planning for the birth of your child.
